Increased government spending on public infrastructure projects should spur demand for construction equipment and related services from Finning International. That should also let it keep raising its dividend.
With a strong balance sheet showing just 26% debt-to-market-cap, $298M in cash, and proven recession resistance, the company continues its 23-year tradition of dividend growth.
The recent 10% dividend hike demonstrates management’s confidence in future cash flows, while the stock trades at 9.8 times the company’s forward earnings forecast. With both strong financials and infrastructure spending tailwinds, this is one to hold for the long term.
FINNING INTERNATIONAL INC. (Toronto symbol FTT; www.finning.com) sells and services Caterpillar-brand heavy equipment in Western Canada but also Chile, Argentina, Bolivia, the U.K. and Ireland. Its main customers are in the oil and gas, mining, forestry products and construction industries.
Finning continues to benefit from rising commodity prices, such as for copper. That reflects increasing demand from mining firms for its products. It’s also benefitting from increasing government spending on new infrastructure projects.
Canada is Finning’s biggest market, with 54% of net revenue. Other markets in order of revenue contribution are South America (33%) and the U.K. & Ireland (13%).
The servicing of equipment provides 56% of revenue, while the sale of new equipment provides 33%; the balance comes from the sale of used equipment, rentals and fuel.
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Value Stocks: Finning International’s cheap shares are boosted by a 23-year dividend growth streak
Finning’s shares took a drop in mid-November 2024. That was mainly due to weaker-than-expected demand for support services at its Canadian, and U.K. and Ireland operations. However, sales of new and used equipment remain strong.
Overall revenue in the three months ended September 30, 2024, gained 4.2%, to $2.54 billion from $2.44 billion a year earlier. Even so, that missed the consensus forecast of $2.56 billion.
Finning continues to make progress with a plan to streamline its operations and reduce the size of its workforce. If you exclude severance costs and other unusual items, earnings in the quarter fell 13.1%, to $0.93 a share from $1.07. That also missed the $1.04 consensus estimate.
The company also continues to enjoy strong demand for new equipment. Its backlog as of September 30, 2024, was $2.3 billion, up from $2.0 billion at the end of 2023. After the end of the quarter, it received an order worth $250 million from a mining company in South America, and $90 million of new orders from mining firms in Canada.
Meanwhile, the company’s balance sheet is still sound. It ended the latest quarter with cash of $298 million, and its long-term debt of $1.38 billion is a moderate 26% of its market cap. Finning’s strong balance sheet cuts its cyclical risk.
Finning will probably earn $3.91 a share for all of 2025, and the stock trades at just 9.8 times that forecast.
With the June 2024 payment, Finning raised your quarterly dividend by 10.0% to $0.275 from $0.25 a share. The new annual rate of $1.10 a share yields 2.9%. Finning has now raised the annual dividend rate each year for the past 23 years.
Recommendation in The Successful Investor: Finning Int’l Inc. is a buy.
