Why Is Mullen Group Ltd. a Screaming Buy?

Mullen Group Inc’s (TSX:MTL) 5.3% dividend yield and strong financial position provides downside protection for investors.

| More on:

Mullen Group Ltd. (TSX: MTL) is one of Canada’s largest specialized oilfield services and transportation/logistics companies, made up of 26 independently operated businesses.

In the oilfield services segment, which accounts for approximately 65% of EBITDA, Mullen offers a broad range of specialized services, such as hauling crude oil, rig moving, drilling mud storage, warehousing, and handling and storage of oilfield fluids. The trucking/logistics segment, which accounts for the remainder of EBITDA, offers general freight services to customers in Canada, the United States, and Mexico.

Along with many others, this is a company that is going through hard times due to the difficult economic environment. However, this is exactly where the opportunity lies, because Mullen Group is not the only company going through difficult times, but it is relatively unique in its industry due to its financial strength and flexibility and its diversity. It is this that gives it the opportunities that, in my view, will enable it to emerge from this difficult time a bigger and stronger company.

Strong balance sheet and safe dividend

Mullen currently has $91 million in cash, with a debt-to-total capitalization ratio of 31%. The company recently raised $400 million debt and now has over $500 million in financial flexibility at its disposal to invest in growth.

While the company’s dividend and capital expenditures were not fully covered by cash flow generation in recent results, Mullen is seeking growth opportunities in order to grow cash flow. Furthermore, the company has more than doubled its dividend in the last four years and has taken steps to take a lot of the cyclicality out of its business and created a diversified business model that has achieved relatively steady margins for a company in its businesses.

In the oilfield services segment, for example, it has moved away from drill rig moving toward growing the pipeline, specialized service and fluid hauling operations, all of which are less cyclical and experiencing stronger and steadier long-term growth rates at this time.

Operating costs

Fuel is 8.5% of operating costs. With Brent oil down to less than $88 per barrel and down 25% since June, this will have a positive impact on companies such as Mullen Group as fuel costs decline. Although the magnitude of the decline in gasoline prices has not been as extreme, they have started to move lower. And with the risk of crude declining further, there may be bigger relief at the pump going forward.

Acquisitions

Mullen has the financial strength and inclination to acquire in order to grow the business, seeing that organic growth will be more difficult in this low-growth environment. As such, Mullen’s strategy in the next few years will be highly focused on profitable growth through acquisitions. It will focus on the trucking industry and continue to invest only in accretive acquisitions. The company is no stranger to this strategy and has a good track record of making highly profitable acquisitions in the past. Longer term, Mullen will benefit from the growth of the LNG and water handling industries in Canada.

With valuations in the sector and the market in general falling, it will be a good time for Mullen to pick up some assets. As management has stated, consolidation needs to happen in the trucking industry in order to find synergies and greater scale. On the oilfield services side, management will get more aggressive with acquisitions when there is more clarity that pipelines will be built.

Kriska: A new transportation and logistics company

Mullen recently reached an agreement with privately held Kriska Holdings Ltd. to invest in the creation of Kriska Transportation, which will be a new growth oriented transportation and logistics company. This agreement will position Mullen to participate more fully in the consolidation in the Ontario trucking industry.

In times of economic weakness and stock market corrections, investors can scoop up quality companies that will take advantage of the weakness and create opportunity. Mullen is one such company.

Fool contributor Karen Thomas has no position in any stocks mentioned.

More on Dividend Stocks

Paper Canadian currency of various denominations
Dividend Stocks

1 Marvellous Dividend Stock Down 5% to Buy and Hold Forever

A small dip in Fortis could be your chance to lock in a 50-year dividend grower before utilities rebound.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

3 Dividend Stocks to Buy Now for Less Than $50 

Investing $50 weekly can transform your financial future. Find out how to make the most of your investment strategy.

Read more »

Printing canadian dollar bills on a print machine
Dividend Stocks

Transform Your TFSA Into a Cash-Crushing Machine With Just $30,000

Just $30,000 and two carefully chosen dividend stocks could kickstart your TFSA income journey.

Read more »

Colored pins on calendar showing a month
Dividend Stocks

Want $251 in Super-Safe Monthly Dividends? Invest $44,000 in These 2 Ultra-High-Yield Stocks 

Discover how dividend-paying assets provide assurance and regular cash flows, especially in challenging economic times.

Read more »

shopper chooses vegetables at grocery store
Dividend Stocks

Buy 758 Shares of This Top Dividend Stock for $75 a Month in Passive Income

A grocery-anchored REIT with a nearly 8% yield and room to grow might be just what your monthly passive income…

Read more »

dividends can compound over time
Dividend Stocks

High-Yield Stocks for Canada’s Current Low-Rate Environment

These three high-yielding dividend stocks can boost your passive income while also providing stability in this uncertain outlook.

Read more »

ways to boost income
Dividend Stocks

Turn Any TFSA Into $600 in Monthly Dividend Income

Turn your TFSA into tax-free monthly cash flow with two simple picks an industrial REIT and a high-dividend ETF you…

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

CRA: Here’s the TFSA Contribution Limit for 2026

The TFSA contribution limit for 2026 is $7,000. How will you save and invest this amount this year and carry…

Read more »