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3 Reasons to Own This Breakout Dividend Stock

TFI International Inc. (TSX:TFII) announced strong earnings April 25, which suggests that the 11 analysts who raised their expectations over the past month for the logistics and trucking stock weren’t off the mark.

The number that really stands out in its first-quarter report is adjusted earnings per share, which were $0.56, 18 cents higher than analyst estimates.

“We’re cautiously optimistic about the way the year is unfolding. The North American economy is expanding, and as a result, volumes have been on the rise,” stated CEO Alain Bédard during the company’s earnings call. “The transportation industry is somewhat capacity-constrained, and this has shipping rates on the rise. Even in U.S. Truckload, which was the slowest market to recover for us, [it] now shows signs of improvement due to these forces.”

In February, I recommended TFI International stock, suggesting that Bédard’s impressive job managing the company’s various business segments would mean more good news for investors in 2018. Since then, TFI stock is up more than 10%, with most of the gains coming as a result of its first-quarter earnings.

Low P/E

Interestingly, Bédard did say that the company is looking to sell a piece of real estate sometime in fiscal 2018 that could generate as much as $2.17 per share in cash. If you back out that cash, TFI International is currently trading at less than 14 times its 2018 EPS analyst estimate of $2.55, which is 20 cents higher than it was a month ago.

That’s one of the reasons that analysts have upped the company’s 12-month target price. The highest was Stifel Financial Corp. analyst David Ross, who recently boosted his target share price by $3 to $45 a share, providing 22% upside potential. 

Good capital allocation

The company bought back a little over one million of its shares during the first quarter at an average price of $32.77 a share, which was slightly above the stock’s midpoint of $31.95 during the quarter, but well below its $34.81 high.

Bédard wants to buy back another 2-3 million shares. Since the end of 2015, TFI International reduced its share count by approximately 10%, most of which were repurchased in 2016, when it bought back 6.4 million shares at an average price of $23.49 a share, 14% below the stock’s 2016 midpoint of $27.26, and a 70% return on investment since then.

Bédard suggests that most of the money it will use to buy back its stock will come from the sale of real estate, with most of its excess cash going to debt repayment.

At the end March, TFI International’s long-term debt was $1.5 billion, slightly lower than where it was at the end of 2016. In the trailing 12 months through the end of the first quarter, the company’s free cash flow was $400 million for an FCF yield of 13.4% using market cap and 8.9% based on enterprise value, both of which are indicative of a reasonably cheap stock price.

A growing dividend

As contributor Joseph Solitro said in early January, TFI International has a very good annual dividend that’s increased for eight consecutive years.

Currently yielding 2.3%, the company raised its quarterly dividend to 21 cents in the first quarter. Since 2010, TFI International’s increased its dividend by 9.7% compounded annually.

While it’s not the highest dividend yield out there, it’s the growth that matters. If the first quarter is any indication, TFI International has plenty of growth left in the tank.

At $37, it’s a definite buy.

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Fool contributor Will Ashworth has no position in any stocks mentioned.

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