Toromont reports a revenue dip, but raises its payout 11.6%

We continue to recommend all investors allocate as much as 20% of their portfolios to aggressive stocks.

This top pick is an industrial firm operating in a cyclical industry. This makes the company vulnerable to economic downturns, but it’s a leader in its market and that helps offset the cyclical risk.

Meanwhile, governments in Canada and elsewhere continue to invest in new public works projects such as roads, mass transit systems and hospitals. Those investments are fueling strong orders for the firm’s heavy construction equipment as well as demand for its maintenance and repair services.

The firm’s balance sheet remains robust and this stock continues to be a solid long-term pick for us (we first recommended it in 1998 and it’s returned 1,221.5% since then).

The stock trades at 19.6 times the company’s forward earnings forecast.

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TOROMONT INDUSTRIES LTD. (Toronto symbol TIH; www.toromont.com) distributes a range of industrial equipment, including Caterpillar machinery, in eastern Canada. It also makes refrigeration systems through its CIMCO business.

The firm operates through two business segments:

The Equipment Group (91% of revenue) is the exclusive Caterpillar dealer of Caterpillar heavy equipment, such as bulldozers, backhoes and excavators, for eastern Canada. The company is also the MaK engine dealer for the Eastern Seaboard of the U.S., from Maine to Virginia.

Performance in the Equipment Group is driven by activity in several industries: road building and other infrastructure-related activities; mining; residential and commercial construction; power generation; aggregates; waste management; steel; and forestry.

CIMCO (9%) is a market leader in the design, engineering, fabrication, installation and after-sale support of refrigeration systems in industrial and recreational markets.

Results of CIMCO are influenced by conditions in the primary market segments it serves: beverage and food processing; cold storage; food distribution; mining; and recreational ice rinks.

In total, Toromont employs over 7,000 people in more than 160 locations across Canada and the U.S.

Dividend Stocks: Revenue rises on strong equipment demand

In the second quarter of 2024, Toromont’s overall revenue rose 15.7%, to $1.36 billion from $1.18 billion a year earlier. Revenue at the Equipment Group improved 15.5% on strong demand for new and used equipment. CIMCO’s revenue also rose 18.6% as deliveries improved after recent delays. Overall earnings gained 1.9%, to $1.64 a share (or a total of $135.4 million) from $1.62 a share (or $133.3 million). That’s mainly due to higher interest income on its investments.

With the April 2024 payment, Toromont raised your quarterly dividend by 11.6%, to $0.48 a share from $0.43. The new annual rate of $1.92 yields 1.6%. The company has paid regular dividends since it went public in 1968 and has raised the annual rate each year for the past 35 years.

The company’s outlook remains bright, thanks to its strong brands and dominant position in niche markets. Toromont’s parts and service business is also a significant contributor to its overall profitability, and its recurring revenue serves to stabilize results through economic downturns.

Toromont will probably earn $6.25 a share in 2024, and the stock trades at a reasonable 19.6 times that estimate.

We first recommended Toromont Corporation in our second issue of our Power Growth Investor newsletter (then called Stock Pickers Digest) in July 1998 at $18.50 a share ($9.25 after a 2-for-1 split in April 2004).

The stock is now up a stellar 1,221.5% since then.

Recommendation in Dividend Advisor: Toromont Industries Ltd. is a buy.

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Jim Bates

Jim is an associate editor at TSI Network. He is the lead reporter and analyst for The Successful Investor and Wall Street Stock Forecaster and a member of the Investment Planning Committee. Jim has held the Chartered Financial Analyst designation since 1992 and spent more than a decade at the Financial Post DataGroup before joining TSI Network. He has a Bachelor of Commerce degree from the University of Toronto.

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