Boyd Group Income Fund (TSX:BYD.UN) isn’t a well-known dividend stock. In fact, it’s not known as a dividend stock at all. With a 0.3% yield, Boyd isn’t on anyone’s radar. That’s a mistake.
Think about growth stocks. Do you want to buy them before or after everyone else has discovered them? The answer is before, of course. That’s when the biggest gains are made.
The same is true for income stocks. You want to buy them before they’re dividend all-stars, not after.
Boyd stock has all the characteristics of the next dividend dynasty. By buying early, you can make double or triple the profit.
This is your chance
Boyd has spent the last 13 years building a truly impressive business. If you want to bet on a proven company, Boyd should be at the top of your list.
Since 2003, shares have risen by more than 15,000%. The S&P/TSX Composite Index, for comparison, barely increased by 50%.
How did Boyd achieve such spectacular results? It didn’t aim to reinvent the world. Instead, it devised a simple strategy for creating value and executed flawlessly time and time again.
Back in 2003, Boyd’s founder, Terry Smith, recognized that the collision repair market in Canada was ripe for consolidation.
The first factor that caught his eye was fragmentation. There wasn’t a single competitor that controlled more than a few percent of the market.
The vast majority of competitors only operated one or two locations. The second factor was limited exit opportunities. There simply weren’t many potential buyers for small, independently owned collision centers.
These factors in combination formed a compelling case. Fragmentation allowed Boyd to purchase hundreds of locations from independent owners. The lack of exit opportunities meant Boyd was often the only bidder, thereby ensuring very attractive acquisition prices.
When Boyd began its industry consolidation strategy, shares rose by more than 100% in a single year. The following years brought several more doubles. All Boyd needs to do at this point is repeat this proven strategy ad infinitum.
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No one is looking
Despite its incredible growth history, however, Boyd is still a diamond waiting to be discovered. Its relatively small $4 billion market cap may have something to do with that. Yet even those that are familiar with Boyd aren’t prepared for what’s about to happen.
Boyd stock currently pays a 0.3% dividend. This payout composes only 7% of earnings, so even if Boyd retained half of its profits, it could still theoretically pay a 2.1% dividend. While that’s still not impressive, it’s quite the yield for a company growing earnings by 30% every year.
If the company kept a 50% payout ratio, the dividend yield could reach 8% in as little as five years. That’s on today’s cost basis, however. If you wait for the dividend to grow, you’ll likely get a much smaller yield.
Rest assured that Boyd will continue to pay a growing dividend. As it further consolidates the market, top-line growth will eventually taper off, meaning the company won’t need to retain as much earnings.
In a few years, Boyd could become Canada’s top dividend stock. If you buy today, you can lock-in double or triple the yield.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Ryan Vanzo has no position in any stocks mentioned.