The ongoing sell-off in equity markets has provided investors with enough options to buy quality stocks at a discount. While there will be multiple interest rate hikes this year, the maximum returns a fixed-income investor can generate will range around 3%. Comparatively, inflation rates remain at multi-year highs making equities the top bet right now.
However, there is a chance for retirees to benefit from both a steady stream of cash flows as well as capital gains by investing in quality dividend stocks such as Savaria (TSX: SIS). At the time of writing, Savaria offers investors a forward yield of 2.7% and the opportunity to derive double-digit capital gains in the next year.
An overview of Savaria
Savaria has crushed the broader market in the past decade and its shares are up 1,730% in dividend-adjusted gains since February 2012. Comparatively, the S&P 500 Index has surged by 314% in this period. But Savaria shares are also down almost 20% from record highs, allowing investors to buy the dip.
Valued at a market cap of $1.17 billion, Savaria provides accessibility solutions to the elderly and physically challenged in North America and other international markets. The company has three business segments that include:
Accessibility: It designs, manufactures, distributes, and installs accessibility products such as stairlifts, wheelchair platform lifts, and elevators for home and commercial use.
Adapted vehicles: It designs and builds lowered floor wheelchair-accessible conversions for minivans.
Patient handling: It manufactures and distributes therapeutic support surfaces, patient positioners, and other products for the medical market.
The bull case for Savaria stock
Savaria increased sales from $286 million in 2018 to $374 million in 2019. However, sales were down to $355 million in 2020 amid the COVID-19 pandemic. Earlier this year, Savaria acquired Handicare allowing it to almost double its sales in Q3 of 2021 to $180.8 million. In the last 12 months, the company’s sales stood at $562 million. It is forecast to report revenue of $655 million in 2021. Analysts also expect sales to rise by 18% to $771 million in 2022. Comparatively, its adjusted earnings are forecast to rise from $0.52 in 2020 to $0.88 in 2020.
Savaria is valued at a forward price to 2022 sales multiple of 1.8 and a price-to-earnings multiple of 20.5. We can see that Savaria is attractively valued as its adjusted earnings are forecast to grow by 21% in 2021 and 40% in 2022.
The Foolish takeaway
Analysts tracking the stock have a 12-month average target price of $25, which is 37% above its current trading price. After accounting for its dividend yield total returns will be closer to 40%.
Savaria has increased monthly dividends from $0.03 per share in September 2017 to $0.042 in January 2022, at an annual rate of 8.8%. If you invest $10,000 in Savaria stock you could generate close to $270 in annual dividends. Further, if it gains 37% in the next year, your investment could be worth $13,700.
In the last three quarters, Savaria’s operating cash flows stood at $52.2 million, up from $32.9 million in the year-ago period, which will help the company support further dividend increases.
