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

Dividend Stocks

Passive Income: Buy Dividends to Rule Your Retirement

You can establish a passive-income stream by investing in high-dividend ETFs like BMO Equal Weight Banks ETF (TSX:ZEB).

Read more »

consider the options
Dividend Stocks

Magna Stock: Is a 3% Dividend Yield Enough to Make Investors Stay?

Magna (TSX:MG)(NYSE:MGA) stock has grown 8% in the last week but is down over the last year. So is a…

Read more »

Close up shot of senior couple holding hand. Loving couple sitting together and holding hands. Focus on hands.
Dividend Stocks

Retirees: How to Stay Calm in Market Downturns

Are you losing sleep because of market volatility? Here are three tips that should give you peace of mind.

Read more »

Index funds
Dividend Stocks

Buy the Pullback: 2 Top TSX Dividend Stocks for RRSP Investors

The drop in the TSX Index is giving RRSP investors a chance to buy top dividend stocks at cheap prices.

Read more »

Dividend Stocks

2 Stable REITs for $177 in Monthly Income

These two REITs offer stable income you can bring in each month but also have valuable numbers for investors wanting…

Read more »

funds, money, nest egg
Dividend Stocks

3 of the Best Dividend Stocks to Combat Inflation and Rising Interest Rates

Suncor, TD Bank, and Tourmaline are dividend stocks benefitting from rising inflation and rising interest rates.

Read more »

Community homes
Dividend Stocks

Housing Correction of 20% Could Come in 2022: How to Prepare

A housing correction of up to 20% could be coming thanks to inflation and interest rates, but there are other…

Read more »

grow dividends
Dividend Stocks

WOW! This Canadian Dividend Stock Is Incredibly Cheap

While there are lots of opportunities for investors in the market today, one of the best to buy now is…

Read more »