Monday’s TSX breakouts: This stock features a 7% yield, promising outlook

The S&P/TSX composite index continues to experience rallies and retreats but the net result has been little traction. Year-to-date, the index is up less than 4 per cent. Investors continue to bid up defensive stocks such real estate investment trusts and high dividend paying stocks.

On a valuation basis, the TSX index is now trading at a price-to-earnings multiple of 18 times the 2016 consensus estimate and at 15 times the 2017 consensus forecast, which is above its historical averages, and its valuation is closing in on peak levels, suggesting investors' skepticism and caution may be warranted.

Discussed below is a stock with a 7-per-cent dividend yield – Ag Growth International Inc. (AFN-T).

A brief outline is provided that may serve as a springboard for further fundamental research.

The company

AG Growth manufactures agricultural equipment used for grain handling and storage such as storage bins, augers, and belt conveyors.

On March 10, the company reported better-than-expected fourth-quarter results before the market opened, sending the stock up 6.6 per cent that trading day on high volume. Adjusted earnings before interest, taxes, depreciation and amortization(EBITDA) came in just under $13-million, ahead of the Street's forecast of $11.5-million.

While 2015 was a challenging year with the drought conditions in western Canada and weak demand, management's outlook for 2016 is optimistic. Management anticipates, "Sales in the first quarter of 2016 to reflect the weak demand levels experienced in Q4 2015 that resulted from slightly elevated inventory levels and cautious buying behavior at the dealer and consumer levels. Nonetheless, existing indicators point towards higher demand for farm equipment in fiscal 2016 compared to 2015."

Dividend policy

The company pays shareholders a monthly dividend of 20 cents per share, or $2.40 yearly. This equates to an annualized dividend yield of 7 per cent. The divided has been maintained at this level since its January 2011 payment.

The funds from operations payout ratio was 84 per cent in 2015.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 8 times the 2017 consensus earnings estimate. This valuation is relatively in-line with the stock's historical five-year average.

Analysts' recommendations

According to Bloomberg, there are five buy recommendations, two hold recommendations, and there are no sell recommendations. The average one-year price target amongst these analysts is $36.64, implying the share price may appreciate just over 7 per cent. Price targets vary widely from a low of $28.50 to a high of $41. Individual target prices are as follows: $28.50, two at $35, $36, $40, and two at $41.

The consensus EBITDA estimate is $89-million 2016, up from $72-million in 2015, and EBITDA is forecast by the Street to reach $100-million in 2017.

Chart watch

This small cap industrial stock, with a market capitalization of approximately $488-million, has been in a downtrend since mid-2015. However, during the past two and a half weeks, the share price has soared 38 per cent, rising to over $34 from $24.77 on March 2. Despite this, it is premature to call this stock a technical "buy".

The stock is nearing large overhead resistance. There is initial resistance at $35, and after that, around $36, which is close to the stock's 200-day moving average (at $35.91). There is downside support around $30, and then at $28, close to its 50-day moving average (at $28.25)

The relative strength index is at 79, suggesting the shares are in overbought territory. Generally, a reading of 70 or higher indicates an overbought condition. That being said, a security can remain overbought for some time.

The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

Below is a list of securities in the S&P/TSX composite index and the S&P/TSX Small Cap index that are technically breaking out, reaching new 55-day highs or lows. Securities on the positive breakouts list have displayed positive price momentum during this period. Securities on negative breakouts list have experienced negative price momentum.