The ultimate dividend stock does not necessarily offer the highest yield. A candidate must pass several checks, including business fundamentals, earnings growth, target market, sustainability of dividends, and payout frequency. Savaria (TSX:SIS) fits the bill on the Toronto Stock Exchange.
Savaria’s dividend offer is not the highest (3.55%), but if you’re chasing monthly income or 12 dividends to reinvest in a year, the industrial stock is the definitive choice. Besides a niche market, the top line or revenue has been on a steep climb since 2016. However, net income fluctuates as profit margins spike and dip.
Niche market
Savaria is a niche play with a leading position in the accessibility industry. The $1.04 billion company provides accessibility solutions for the elderly and physically challenged people globally. Its moat stems from a comprehensive product portfolio (home and commercial), including home elevators, commercial lifts, stairlifts, ceiling lifts, and adapted vehicles. Other offerings are medical beds and therapeutic surfaces.
With a global manufacturing network, Savaria can meet specific customer requirements and serve the aging or elderly population in global markets. It operates six plants in Canada, five in Europe, two in the United States and China, and one in Mexico.
In addition to an extensive global dealer network, Savaria maintains direct sales offices in North America, Europe, Australia, and China. Since post-pandemic, demand has been ever-increasing, particularly from aging baby boomers.
Aging population
Savaria is likely to benefit from the growing demographics. According to United Nations World Population Prospects (2022), through OurWorldInData.org, the population of people aged 65 and above is rising in every country and will continue to do so in the future. By 2100, 25%, or one in four people, will be over 65.
The same report said an aging population could impact all sectors, including labour and financial markets, not to mention housing and transportation. Clearly, Savaria’s addressable market is enormous, and its two core business segments, Accessibility and Patient Care, are assured of business growth.
Strongest quarterly results
In the third quarter (Q3) of fiscal 2023, revenue and operating income grew 4.3% and 17.6% to $210 million and $20.6 million versus Q3 fiscal 2022, while net earnings rose 13.9% year over year to $12 million. “This third quarter is the best ever quarter presented by Savaria,” said Marcel Bourassa, its president and chief executive officer.
While Patient Care’s organic growth was relatively flat during the quarter, the Accessibility Segment had 5.1% organic and 4.8% revenue growth. Its $166.3 million accounts for 76.1% of total revenue in Q3 fiscal 2023.
On a year-to-date basis (nine months that ended Sept. 30, 2023), revenue and net earnings climbed 7.5% and 11.8% to $577 million and $26.9 million from a year ago.
Bright outlook, buy rating
Savaria projects revenue growth between 8% and 10% in fiscal 2023. The backlog, cross-selling efforts, and strong demand in both business segments should deliver organic growth in the coming quarters. Expect the company to pursue strategic acquisitions because new acquisitions can make significant financial contributions.
Market analysts recommend a buy rating for Savaria. Their 12-month average and high price targets for this ultimate dividend stock are $19.29 (+32%) and $25 (+71%).
