Income-seeking investors can consider buying shares of dividend stocks such as Maple Leaf Foods (TSX:MFI). Valued at a market cap of $3.2 billion, Maple Leaf currently pays shareholders an annual dividend of $0.83 per share, translating to a yield of 3.2%. Down 30% from all-time highs, the TSX stock should also generate capital gains if the market sentiment improves. Let’s see if Maple Leaf stock should be part of your equity portfolio right now.
Is Maple Leaf stock a good buy today?
Maple Leaf is Canada’s largest prepared meats and poultry producer. Further, it is a leading private-label supplier to retail and food service companies. With 27 locations in Canada, Maple Leaf has a presence in the U.S., Mexico, and Asia.
Armed with a leading portfolio of brands, Maple Leaf is focused on expanding south of the border, which is the largest consumer market globally. Maple Leaf is now targeting the plant protein segment and expects the segment to report a positive adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) in the second half of 2023.
Maple Leaf has a disciplined capital-allocation strategy, providing the company with the flexibility to target organic growth, de-lever its balance sheet, and increase shareholder returns. As capital projects start ramping up, Maple Leaf expects to increase EBITDA by $130 million each year, starting in the next six months.
In the second quarter (Q2) of 2023, Maple Leaf reported revenue of $1.23 billion, an increase of 6.6% year over year. It implemented price increases in Q2, allowing it to increase EBITDA margins by 30 basis points year over year. Maple Leaf increased market share in the U.S. retail refrigerated plant-based protein segment by 2.1% and is on track to end 2023 with sales of $5 billion, an increase of almost 6% compared to 2022.
What’s next for Maple Leaf stock?
Maple Leaf has invested $772 million to build a 660,000-square-foot facility, which is among the most advanced poultry processing plants globally. The facility should favour a more profitable product mix through improved processing capabilities and reduced costs via scale, technology, and complexity reduction.
Maple Leaf expects a 30% improvement in operating costs and a 42% improvement in labour costs at the London Poultry facility with capacity growth to meet the growing demand for higher-margin poultry.
The company also invested $182 million to expand its 73,000-square-foot facility in Winnipeg to add two pre-cooked bacon lines and one bacon bits/chip line, as well as additional smokehouse capacity. This should help it capture demand for pre-cooked bacon and reduce risks by helping Maple Leaf move away from co-manufacturers.
Maple Leaf is forecast to improve its bottom line from a loss per share of $0.26 in 2022 to earnings of $1.95 per share in 2024. Priced at 13.3 times forward earnings, Maple Leaf stock is quite cheap, given its improving profit margins and high dividend yield.
Maple Leaf should also increase dividend payouts due to widening cash flows. In the last decade, its dividends have increased by 18% annually. Analysts remain bullish and expect the TSX stock to gain over 40% in the next 12 months.
