Dividend investing is a proven strategy to preserve or protect purchasing power during an inflationary environment. However, because of cooling inflation, the Bank of Canada delivered a 0.25% rate cut on June 5, 2024, the first since March 2020.
If you want to earn monthly passive income as inflation declines, Mullen Group (TSX: MTL) is the dividend stock to buy right now. Besides the generous 5.58% dividend yield, the stock trades at a discount. At $12.91 per share, MTL is down 6.09% year to date and 15.24% from a year ago. Market analysts’ high price target in 12 months is $22, or 70.4% upside potential.
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Path to growth
Mullen Group is one of Canada’s largest trucking and logistics services providers. The $1.14 billion company boasts a network of independently operated businesses. Its four business segments and revenue contributors are Less-Than-Truckload, Logistics & Warehousing, Specialized & Industrial Services, and U.S. & International Logistics.
Management is forward-looking and believes acquisitions are the path to growth and improved performance. Mullen went public in 1993 and has since completed over 77 acquisitions, ranging from small to large and tucking well-established industry brands.
The most recent strategic acquisition is ContainerWorld Forwarding Services and its operating subsidiaries. This reputable logistics company from British Columbia offers integrated supply chain solutions to the alcoholic beverage and hospitality industries.
Murray Mullen, chairman and senior executive officer at Mullen Group, said following the acquisition, “The addition of ContainerWorld demonstrates our continued strategic focus of diversifying service offerings into verticals and markets that we consider as great long-term opportunities.”
Management welcomes alcoholic beverages because they are a multi-billion-dollar industry in Canada and a trillion-dollar industry globally. ContainerWorld will be part of Mullen’s logistics and warehousing segment and is expected to generate around $150 million in annualized revenue.
Business challenges
Mullen noted the challenges in the freight market, evidenced by the first-quarter (Q1) 2024 financial results. Revenue declined 7.1% to $462.6 million compared to Q1 2023, while net income fell almost 30% year over year to $22.2 million.
According to Mullen, besides muted economic activity, freight demand in the logistics and warehousing industry, including in most verticals, was soft. He added, “You have less freight to handle accompanied by the increase in capacity.”
Nearly all business segments reported revenue drops in Q1 2024 compared to the same quarter in 2023. The challenging environment also led to competitive, if not predatory, pricing. Fortunately, the lowering of rates could spur economic activity. Still, investments in real estate to meet future growth plans continued.
Mullen expanded its Thunder Bay facility in Ontario by adding 18 cross-dock doors and 10,000 square feet of ambient temperature-controlled warehouse space. The board approved an $80 million capital budget, of which $70 million is for maintenance capital and $10 million for sustainability initiatives.
Near-term outlook and plan
Mullen doesn’t expect significant market changes in the near term. The immediate plan is to focus on reducing costs where practical and restructuring underperforming business units.
Income investors should have confidence in Mullen owing to the consistent profitability in the last four years and uninterrupted monthly dividend payments since 2019. The start of rate cuts is a tailwind as it could spur economic growth.
