Sometimes the market hands you a gift in plain sight. TFI International (TSX:TFII), one of North America’s top transportation and logistics companies, has been knocked down hard this year, losing close to 42% from its 52-week high. That kind of drop can make income investors nervous, but for those with a long-term view, it can also open the door to a lifetime income play.
Source: Getty Images
What happened
Over the past year, TFI faced a challenging freight environment. Demand has been weaker, particularly in its Less-Than-Truckload, Truckload, and Logistics segments. In its most recent quarter, revenue came in at US$2.04 billion, down from US$2.26 billion a year ago. Adjusted earnings per share (EPS) slid from US$1.71 to US$1.34. Operating income also fell, from US$206 million to US$170 million. Those numbers make it clear the slowdown has been real.
But there’s another side to the story. Free cash flow rose 20% year-over-year to US$182 million. That’s a sign the business is still generating plenty of cash, even as profits dip. Cash flow matters because it’s what fuels dividends, buybacks, and growth investments. A dividend stock can report lower earnings for a time and still reward shareholders if the cash is there to back it up.
TFI hasn’t shied away from doing just that. The dividend now sits at $2.47 per share, up from last year. On a forward basis, the yield is about 2.1%, and the payout ratio is around 40%. That’s a comfortable level, leaving room for both reinvestment in the business and further dividend growth down the road. Management has also been active in buying back shares, boosting total shareholder returns.
Future focus
Looking ahead, the biggest catalyst is a recovery in freight volumes. When the economy steadies and shipping activity rebounds, TFI’s revenue and earnings could climb sharply. The dividend stock has already taken steps to position itself for that moment. It has new leadership in place across segments, focused on operational efficiency and high-quality revenue. It has also been disciplined with acquisitions, like last year’s deal for Daseke, which expanded its reach in the truckload market.
Valuation adds another point in its favour. With the share price sitting near $122, the dividend stock trades at a forward price-to-earnings ratio of about 18.6. That’s not bargain basement, but it’s a lot cheaper than the multiples investors were paying when the stock was above $200. The market seems to be pricing in a slow recovery, so any signs of demand improvement could lift the dividend stock.
Of course, there are risks. The transportation industry is cyclical, and TFI’s fortunes are tied to economic trends. If freight demand stays weak longer than expected, revenue pressure could continue. The dividend stock also carries debt from its acquisitions, which means higher interest costs can eat into profits. And while cash flow has been resilient so far, a prolonged downturn could make it harder to maintain both buybacks and dividend increases.
Foolish takeaway
The long-term case is compelling. TFI has a strong market position, proven management, and a track record of disciplined capital allocation. Its ability to keep generating cash in a soft market suggests it can weather downturns. For income investors, that combination of market share strength, financial discipline, and consistent dividends is the recipe for lifetime income.
Right now, the market seems more focused on the short-term pain than the long-term opportunity. That’s why the dividend stock is down so sharply. For patient investors, that could be the opening to buy a high-quality dividend payer at a much lower price than it traded just months ago. It may not be the highest-yielding stock on the TSX, but its dividend is built on a solid foundation, with room to grow. One that could bring in $300 annually!
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| TFII | $122.29 | 122 | $2.47 | $301.34 | Quarterly | $14,914.38 |
If you can look past the current slowdown and focus on where TFI could be in five or ten years, today’s weakness could look like one of those rare chances to lock in dependable income and long-term upside. For investors willing to wait, this might be the time to climb aboard.
