EV Investors: 1 Top TSX Stock to Buy Right Now

Magna International (TSX:MG)(NYSE:MGA) is a great way to play the electrification trend right now.

| More on:
Electric car being charged

Image source: Getty Images

Magna International (TSX:MG)(NYSE:MGA) isn’t waiting around for the electrified world to reach its premises. One of the most promising tier-one suppliers with full-fledged vehicle manufacturing capabilities backed by its Steyr division, MG has already gotten its hands into the production of three OEM electric vehicles. Magna quickly realized that the 2% sales figure of EVs in 2019 could project to a staggering 15% by 2030. The icing on the cake was Magna’s agreement with Fisker in December 2020 that marked its first entry into contract manufacturing for an EV start-up.

Hence, MG is more than excited about this strategy to leverage its strong portfolio to scale for future mobility needs. Therefore, I think investors need to be equally excited about buying TSX stocks now more than ever.

Magna continues to ride high on a superb earnings streak

MG clocked a 2.3% dividend yield and an 18% payout ratio in 2020. Accordingly, investors continue to believe Magna will be able to cover dividend payments without breaking a sweat. Add to that a 4.4% free cash flow yield during the same period.

In fact, on a four-quarter-trailing basis, Magna’s free cash flows totaled $3.2 billion, indicating its robust business model ready to thrive in the current environment. Hence, I don’t consider Magna International’s shift to EV as an existential crisis. Instead, this move is all about expansion and long-term growth, which will allow the company to reduce its debt load and increase dividends over time.

February 2021 results indicate a rise in Magna’s sales per share by a whopping 17%, whereas earnings were up by 98%. So, while MG stock certainly doesn’t look like a value play at these levels, it’s expensive for a reason.

Moreover, MG saw a 31% rise in earnings above analysts’ expectations, thereby indicating a picture for solid long-term prospects. Also, Magna’s earnings are expected to grow by 91% in 2021 and by a further 16% in 2022, thereby adding to the home run for long-term investors.

MG bands forces with top chaebol to electrify the market

Magna and LG Electronics announced a joint venture in December 2020 to develop e-motors and chargers for certain automakers to champion the global shift towards vehicle electrification. With this joint venture, tentatively called LG Magna e-Powertrain, Magna expects to accelerate its scale of manufacturing electric powertrain systems, besides software and systems integration.

Bottom line

Successfully breaking through a two-year-plus downward spiraling resistance line, Magna International is now an excellent long-term holding option. It has consistently converted earnings into strong cash flow, allowing for increased capex investments and substantial returns to shareholders. With its moves into the EV sector, I think investors should now take the cue and bite into this stock.

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 Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool recommends Magna Int’l.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »