Yahoo Finance Exco Technologies Limited Is My Value Pick for the Month
Exco Technologies Limited (TSX:XTC) has been a steady, well-run company over its history, and shareholders have been rewarded with regular dividend increases. The stock has declined 28% in the last year, and I view this as a good opportunity for investors to get into a high-quality name that would be a solid addition to their income-generating portfolios.
Solid financials
In the most recent quarter, the company increased its dividend by 14%. In fact, the company has a really strong history of dividend increases. Since 2012, the dividend has grown at a cumulative average growth rate of 18% from $0.14 per share in 2012 to $0.32 currently.
Revenue increased 17% to $153.1 million, and this was due to the acquisition of AFX, which contributed $28.5 million of this increase. Exco acquired AFX back in April 2016 for US$73 million, and this acquisition is complementary to Exco?s interior trim business; management expects it to be highly accretive to earnings.
On to cash flow. The company also has a good history of generating solid free cash flow numbers. In the latest quarter, the company generated free cash flow of $18.3 million for a very attractive free cash flow margin of 12%.
Additionally, Exco has been able to achieve strong margins. In the latest quarter, the company posted an operating margin of over 11%, similar to Linamar Corporation?s (TSX:LNR) operating margin and significantly higher than Magna International Inc.?s (TSX:MG)(NYSE:MGA), which came in at 7.7% in its latest results.
Let?s also look at return on equity (ROE) ? a metric investors should always look at because it shows us how effective a company is at creating profit from our (shareholders?) money. Exco Technologies ranks very well on this measure as well. In 2016, the company generated an ROE of 17.2%, which compares to Magna?s ROE of 21.8% and Linamar?s ROE of 21.5%.
Balance sheet remains strong
The company has $38 million of cash and cash equivalents on the balance sheet, a debt-to-total-capitalization ratio of 19%, and a net debt to trailing EBITDA of a very healthy 0.3 times.
Attractive valuation
The shares trade at a P/E ratio of 9.4 times with an expected earnings-growth rate (based on consensus analyst expectations) of 12% in 2017 and 13% in 2018. This compares to Magna?s P/E ratio of 8.5 times and expected earnings growth of 6% in 2017 and 9% in 2018, and Linamar?s P/E ratio of 7.6 times and expected earnings growth of 18% in 2017 and 1.2% in 2018.
Finally, Exco Technologies?s current dividend yield is a very attractive 3%, and this dividend is easily covered. In fact, the company has been successful at covering and maintaining its dividend throughout its history, despite the fact that its business is a cyclical one.
How to Find Great Dividend Stocks
Over a nearly 30-year period, dividend-paying stocks earned about 18X more than their non-dividend counterparts!
Yet incredibly, it's only one part of the story.
To find out how these same stocks had 45% less volatility (and how you can try to take advantage!), click here to read this exhaustive report.
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Fool contributor Karen Thomas has no position in any stocks mentioned. Magna International is a recommendation of Stock Advisor Canada.
How to Find Great Dividend Stocks
Over a nearly 30-year period, dividend-paying stocks earned about 18X more than their non-dividend counterparts!
Yet incredibly, it's only one part of the story.
To find out how these same stocks had 45% less volatility (and how you can try to take advantage!), click here to read this exhaustive report.
Fool contributor Karen Thomas has no position in any stocks mentioned. Magna International is a recommendation of Stock Advisor Canada.
