Tuesday’s TSX breakouts: This industrial stock with a 6.8% yield stands out

In today's breakouts report, there are 16 positive breakouts and seven negative breakouts.

Defensive stocks remain dominant among the positive breakouts with utility stocks, gold stocks, real estate investment trusts, and consumer staples stocks on the list. Any time energy stocks rally and appear on the positive breakouts list, for now, this seems to mark a selling opportunity as the positive price momentum in oil appears unsustainable.

There was one new entry to the positive breakouts list that stood out, a small-cap industrial stock, Rocky Mountain Dealerships Inc. (RME-T). The stock pays an attractive dividend, which may account for its recent market strength. The company is discussed briefly below, which may serve as a springboard for further fundamental research.

Calgary-based Rocky Mountain rents, sells, and leases used and new agriculture and industrial equipment through its dealership network across Alberta, Saskatchewan, and Manitoba. The company also provides parts and service support. Rocky services two key market segments, the agriculture market and the industrial market- both facing challenging conditions. The agriculture business represents the majority of its sales. During the first nine months of 2015, it represented 94 per cent of total sales.

Rocky is Canada's largest retail dealer of CNH Industrial equipment, which includes brands such as Case IH Agriculture and Case Construction. Its exposure to the Albertan market is a headwind for the company's industrial equipment business. The company is focused on curtailing costs, reducing inventory levels, as well as its debt.

Dividend policy

Rocky Mountain pays shareholders a quarterly dividend of 11.5 cents per share, or 46 cents per annum, equating to an annualized dividend yield of 6.8 per cent.

Management remains committed to returning capital to shareholders and has periodically lifted its dividend. The last dividend hike announced was in May 2014, and prior to that dividend increases were announced in May 2013 and in May 2012.

The earnings payout ratio is 58 per cent of the 2016 consensus earnings estimate.

Valuation

Rocky Mountain Dealerships is trading at the low end of its historical range. The stock is trading at a price-to-earnings multiple of 7.3 times the 2016 consensus estimate. This is below its three and five-year historical average multiples of 8.7 times and 8.4 times, respectively. Over the past five years, the stock has traded largely between 7 times and 10 times forward earnings.

Analysts' recommendations

While this is a small cap stock with a market capitalization of just $131 million, it is well covered by the Street with large firms such as RBC Capital Markets, TD Securities, and CIBC World Markets covering the stock.

According to Bloomberg, there are two analysts with buy recommendations, six analysts with hold recommendations, and there are no sell recommendations. The average one-year price target of $8.39, implying the shares may appreciate 24 per cent over the next year. Price targets range from a low of $7 to a high of $11.50. Individual price targets are as follows: $7, $7.25, $7.35, $7.50, $8, $9, $9.50, and $11.50.

The consensus earnings per share forecast is 80 cents in 2015, rising 16 per cent to 93 cents in 2016.

Chart Watch

Rocky Mountain remains in a downtrend that began in mid-2013. However, the stock is trying to stabilize and may have put in a double bottom - this remains to be seen.

In terms of year-to-date performance, the stock has delivered a healthy price return, climbing over 8 per cent but not on significant volume. A significant break above $7.50 would confirm a change in direction and start of an uptrend.

There is technical upside resistance around $7.50, close to the stock's 200-day moving average, which stands at $7.53. There is technical support near $6, near the stock's 50-day moving average which stands at $6.21. Failing that there is support around $5.70, where the stock has held during recent market weakness.

This stock can be volatility due to its low liquidity. Over the past two months, the average daily trading volume has been just over 45,000 shares.

This 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 stock 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 stock 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 stocks 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. Stocks on the positive breakouts list have displayed positive price momentum during this period. Stocks on negative breakouts list have experienced negative price momentum.