Friday, November 11, 2011

Finning International Inc

I do not own this stock (TSX-FTT). This stock is pretty much in the same business as Toromont. When I was in the market for such a stock, I picked Toromont. I think that they are both good companies, but I would not invest in both. I do not want to over diversity my portfolio.

Over the past 5 and 10 years, Toromont has done better in growing Revenues, Earnings, Cash Flow and Book Value than Finning. Finning’s dividend and its growth in dividends is higher than Toromont’s. Finning’s Dividend Payout Ratio is also higher.

This dividend yield on Finning is 2.32% (compared to Toromont’s 1.44%). They have increased their dividends over the past 5 and 10 years by 16% per year (compared to Toromont’s 14% per year). Both have good Dividend Payout Ratios, with Finning’s 5 year median at 24% of earnings and 25% of cash Flow (compared to Toromont’s 16% and 12%).

Finning’s growth in revenue per share is a bit low being at 0% and 5% per year over the past 5 and 10 years. For the year ending in 2010, Finning lost money. The loss is due to discontinued operations. They made a profit on continuing operations. They are expected to have earnings of $1.50 this year and $2.04 next year.

If you had invested in this company 5 or 10 years ago, you would have made 9.8% and 18.5% per year. Of this total return you would have made approximately 1.8% and 2% from dividends. (In comparison, Toromont’s Total return over the past 5 and 10 years is 7% and 14.9% per year. The portion of total return is 1.2% and 1.4%. I went with Toromont because of better growth. I am not surprised it has done worse than Finning because you tend to earn more capital gains and get less in dividends with Toromont. Markets are depressed at moment, so you are earning less in capital gains.)

The growth in Cash Flow and Book Value is low for Finning’s. The 5 and 10 year growth in Cash Flow is 3.4% and 4% per year, respectively. The 5 and 10 year growth in Book Value is 0% and 5.8% per year, respectively. (I am using the Cash Flow excluding working cash items. That is, I have excluded changes in current assets and current liabilities. You can see a discussion on cash flow at Investor's Friend Site.)

Debt Ratios are fine on this stock. The current Liquidity Ratio is quite good at 1.65. The current Asset/Liability Ratios is a little low at 1.47 and lower than the 5 year median of 1.63, a much better ratio. The current Leverage Debt/Equity Ratios are fine, but a little high at 3.11 and 2.11, respectively. These are also higher than the 5 year median ratios of 2.76 and 1.76, respectively.

The last thing to discuss is the Return on Equity. This has been a bit low over the past couple years at 6.1% and 8.6%. However, the one for the financial year ending in 2010 is much better at 12.3%. The one for the 12 months ending in September 2011 is also better at 18.2%.

This stock is also considered an Industrial stock. You would buy it for buy for rising dividends and long-term gains.

For my blog entries on Toromont (TSX-TIH), dated March 2011, click here or here.

This company sells, rents and provides customer support services for Caterpillar equipment and engines. They cover Canada, UK, Argentina, Bolivia, Chile and Uruguay. Its web site is here Finning. See my spreadsheet at ftt.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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