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Almost every financial advisor 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. CN Rail yields less than 2%. Canadian Pacific Kansas City Ltd. (CP’s official new name) pays less than 1%. Air Canada pays no dividend at all. WestJet no longer trades publicly. CargoJet’s yield is just over 1%. Trucking giant TFI International offers income investors a paltry 1.3% payout.
But there is at least one company in the transportation sector that should appeal to income investors.
Mullen Group Ltd. (TSX: MTL) is an Alberta-based transportation and logistics company, with a market cap of $1.4 billion. The company started in 1949 when Roland Mullen bought his first truck, a ’49 Chev Maple Leaf. He hauled gravel for $3.50 per hour in 1950 and by the mid-’50s 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.
I like 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. The stock is cheap (p/e ratio of 8.3). This is a sound company, and the yield of 4.6% is one of the best you’ll find in this sector.
The company reported a strong first quarter. Revenue came in at $498 million, an increase of 9% over $457 million in the same quarter of 2022. Net income was $31.7 million ($0.33 per diluted share), compared with $16.4 million ($0.17 per share) in the same period last year. Adjusted net income was $31.3 million ($0.34 a share), up from $19.5 million ($0.21 a share) last year. 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.
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.
The company pays monthly dividends of $0.06 a share ($0.72 a year), for a yield of 4.6% at the current price. It has a history of regularly increasing its dividend in small increments. The monthly payments are eligible for the dividend tax credit if the shares are held in a non-registered account.
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.
The stock is suited 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. Good company, good yield, strong track record. What’s not to like?
If you have a money question, send it to gordonpape@hotmail.com and write Fund Library Question in the subject line. Sorry, I can’t guarantee a personal response, but I’ll answer as many questions as possible here.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website. To take advantage of a 50% saving on a trial subscription and receive the special report “The Tumultuous Twenties,” go to https://bit.ly/bwGP20s.
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Notes and Disclaimer
Content © 2023 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
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