Toromont Industries operates 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 eastern 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.
Given demand robust, the stock continues to be a solid long-term pick for us. It’s returned an impressive 97% over the last 5 years.
Despite these gains, the company remains attractively valued at 18.9 times forecast earnings. It’s a strong infrastructure buy for the long run.
TOROMONT INDUSTRIES LTD. (Toronto symbol TIH; www.toromont.com) distributes a broad range of Caterpillar and other branded industrial equipment in eastern Canada and the Eastern Seaboard of the U.S. It also makes refrigeration systems through its CIMCO business.
Toromont has opened a new remanufacturing plant (re-building used equipment back to the standards of new equipment) in Bradford, Ontario, north of Toronto. The plant cost $70 million.
Remanufacturing helps extend the life of heavy equipment. It’s also becoming more important as elevated prices for new equipment and still-high interest rates prompt clients to repair rather than buy or replace equipment.
Toromont has also announced a new plan to transform its property in the City of Vaughan, just north of Toronto. The site currently houses the company’s head office, as well as industrial buildings for storing heavy equipment.
Under this proposal, Toromont will re-develop the property into a new mixed-use complex. That mainly involves adding 17 new high-rise residential buildings.
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The company has not yet said how much this project will cost, or when it expects to begin construction. However, the plan helps unlock the value of its real estate.
Meanwhile, Toromont is now buying 60% of AVL Manufacturing Inc. This private firm, based in Hamilton, Ontario, makes specialized enclosures for power generators and heating equipment. It sells these products to a variety of industrial customers in eastern North America, including oil and gas producers, automakers, construction firms and datacentre operators.
The company has not yet said how much it is paying, but we expect that the price will be a combination of cash and common shares. As well, it has agreed to buy the final 40% by 2031 with the price based on AVL’s performance.
Note that the deal will help Toromont tap into growing demand for electricity to power AI applications.
Toromont Industries: 36 years of consecutive dividend increases signal financial strength
In the three months ended December 31, 2024, Toromont’s revenue rose 6.5%, to $1.34 billion from $1.17 billion a year earlier. That’s due to strong demand for equipment (up 5%) and refrigeration systems (up 23%). The total revenue figure also topped the $1.28 billion consensus forecast.
Overall earnings in the quarter improved 1.4%, to $156.3 million from $154.1 million. Due to fewer shares outstanding, per-share earnings rose 2.1%, to $1.91 from $1.87. That also beat the consensus estimate of $1.73.
Meanwhile, new public infrastructure projects in Ontario and Quebec continue to spur demand for Toromont’s heavy equipment.
With the April 2025 payment, the company will raise your quarterly dividend by 8.3%, to $0.52 a share from $0.48. The new annual rate of $2.08 yields 1.8%.
The company will likely earn $6.26 a share in 2025, and the stock trades at a reasonable 18.9 times that estimate. Toromont has now paid regular dividends since it went public in 1968 and has raised the annual rate each year for the past 36 years.
Recommendation in The Successful Investor: Toromont Industries Ltd. is a buy.
