Almost every financial adviser will tell you that one of the cornerstones of a well-constructed portfolio is diversification. That means spreading your assets over a wide range of sectors.
For income-oriented investors, that’s not as easy as it sounds. It’s not hard to find high-yielding securities in the financial, real estate, utilities, pipeline and telecom sectors. It’s more difficult when it comes to technology, mining and transportation.
Let’s take a closer look at the transportation sector. Canadian National Railway Co. (CNR-T) yields less than 2 per cent. Canadian Pacific Kansas City Ltd. (CP’s official new name, CP-T) pays less than 1 per cent. Air Canada (AC-T) pays no dividend at all. WestJet no longer trades publicly. CargoJet Inc.’s (CJT-T) yield is just over 1 per cent. Trucking giant TFI International Inc. (TFII-T) offers income investors a paltry 1.3 per cent.
But there is at least one company in the transportation sector that should appeal to income investors. It’s Alberta-based Mullen Group. Here are the details.
Mullen Group Ltd.
- Ticker: MTL-T
- Type: Common stock
- Current price: $15.70
- Annual payout: $0.72
- Yield: 4.6 per cent
- Risk: Moderate
- Website: www.mullen-group.com
The business: Mullen Group is an Alberta-based transportation and logistics company with a market cap of $1.4-billion.
The company was started in 1949 when Roland Mullen bought his first truck, a ‘49 Chev Maple Leaf. He hauled gravel for $3.50 an hour in 1950 and by the mid-fifties was operating three trucks. The company continued to grow and went public in 1993.
Most people think of it as a trucking company, but Mullen also provides specialized services related to the energy, mining, forestry and construction industries in Western Canada. These include water management, fluid hauling and environmental reclamation.
The company has a decentralized business model, with a number of subsidiaries and limited partnerships.
The security: We are recommending the common shares of Mullen Group, which trade on the Toronto Stock Exchange under the symbol MTL. It is also listed on the U.S. over-the-counter market under the symbol MLLGF, although trading there is very limited.
Why we like it: The stock is cheap (price-to-earnings ratio of 8.82). This is a sound company, and the yield of 4.6 per cent is one of the best you’ll find in this sector.
Financial highlights: The company reported a strong first quarter. Revenue came in at $498-million, an increase of 9 per cent over the $457-million it reported in the same period last year.
Net income was $31.7-million (33 cents per diluted share), compared with $16.4-million (17 cents per share) in the same period last year. Adjusted net income was $31.3-million (34 cents a share), up from $19.5-million (21 cents a share) last year.
Management said it entered 2023 anticipating a softening in revenue due to rising interest rates and a change in consumer spending habits. But first-quarter results turned out better than expected, as the anticipated economic retraction didn’t happen. As a result, the company expects demand to continue to be solid.
Risks: Economic risk is a concern, despite the good first quarter. If we do have a recession, it will cut into the company’s revenue and profits. That said, Mullen has been through recessions before, and the diversified nature of the business is a plus.
Distribution policy: The company pays monthly dividends of 6 cents a share (72 cents a year), for a yield of 4.6 per cent at the current price. Mullen has a history of regularly increasing its dividend in small increments.
Buybacks: Mullen is actively repurchasing shares. During the first quarter, it bought almost 2.2 million shares for cancellation at a cost of $31.6-million. The average cost was $14.45 a share.
Tax implications: The monthly payments are eligible for the dividend tax credit if the shares are held in a non-registered account.
Who it’s for: The stock is recommended for investors who would like more exposure to the transportation sector and are willing to accept a moderate degree of risk in exchange for an attractive yield.
How to buy: The shares trade actively on the TSX, with an average daily volume of more than 260,000. U.S. residents who do not have access to the TSX can try the OTC market but use a limit order and be prepared to wait to be filled.
Summing up: Good company, good yield, strong track record. What’s not to like?
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca/subscribe
Gordon Pape