Wednesday’s TSX breakouts: This stock has had annual dividend increases for over a decade

There are 29 securities on the positive breakouts list (stocks with positive price momentum) and just two stocks on the negative breakouts list (stocks with negative price momentum).

An industrial stock that has consistently raised its dividend on an annual basis, even during the recession, is profiled below – Ritchie Bros. Auctioneers Inc. (RBA-T).

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

The company

Burnaby-based, Ritchie Bros. Auctioneers is dual-listed, trading on both the New York Stock Exchange and on the Toronto Stock Exchange under the same ticker, RBA. Ritchie Bros. is the world's largest auctioneer of used heavy machinery from industries such as agriculture, construction, forestry, mining, energy, and trucking. The company has 44 permanent auction locations with operations in 19 countries.

In terms of geographical breakdown, in 2015, 50 per cent of the company's revenue was from the U.S., 32 per cent stemmed from Canada, 10 per cent was from Europe, and the balance was from various regions. On-line bidding allows customers to participate in a global auctions.

On Feb. 25, after the market closed, the company reported fourth-quarter financial results below the Street's expectations. Earnings per share was 29 cents (U.S.), falling short of the consensus estimate of 32 cents. However, the market overlooked this shortfall and the following day, the share price increased 1.2 per cent. Full-year results were respectable. In 2015, sales increased 7 per cent year-over-year to $516-million (U.S.). The strongest top line growth came from the U.S., with revenues rising 15 per cent year over year. Revenues from Canada increased 8 per cent year-over-year, while the remaining regions saw revenues decline. Adjusted earnings per share increased 22 per cent year over year to $1.13. The company's balance sheet was strong with debt-to-adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of 0.5 times at year-end.

Returning capital to shareholders

The company pays its shareholders a quarterly dividend of 16 cents per share (U.S.) or 64 cents per year, equating to an annualized dividend yield of 2.4 per cent. Management has been committed to steadily increasing its dividend, raising it 14 per cent in 2015. Looking back over the past decade, the company has raised its dividend each year, even during the recession.

The dividend appears sustainable. The adjusted dividend payout ratio was 53 per cent in 2015, below its targeted payout ratio of between 55 per cent and 60 per cent.

The company have been active on its share buyback program. Last year, in March 2015, the company repurchased 1.9 million shares.

Valuation

Shares of Ritchie Bros. are trading at a price-to-earnings (p/e) multiple of 23 times the consensus 2016 estimate, and at a p/e multiple of 21 times the consensus 2017 forecast. The stock is trading at a slight discount to its historical three-year average p/e multiple.

On an enterprise value-to-EBITDA basis, the stock is trading at 14 times the consensus 2016 estimate, a slight discount to its historical three-year average multiple.

Analysts' recommendations

According to Bloomberg, there are 7 buy recommendations, 6 hold recommendations, and there is one sell recommendation. The average one-year price target is $36.84 (Cdn.), suggesting the share price may appreciate 6 per cent.

The consensus earnings per share estimate is $1.16 (U.S.) in 2016, up from $1.13 in 2015, and anticipated to jump to $1.28 in 2017.

Chart Watch

While the month of March has been kind to shareholders of Ritchie Bros with the stock price appreciating 7 per cent, the chart suggests it is premature to be accumulating shares.

On a year-to-date basis, the share price is up just 4 per cent, only slightly outperforming the industrial sector in the S&P/TSX composite index.

Looking at technical resistance and support levels, the stock has overhead resistance around $36 (Canadian), and there is large resistance at $40. There is downside support around $32, which is near its 50-day moving average (at $32.32), and failing that at $30.

The relative strength index is at 68, suggesting the shares are nearing 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.