If you’re new to investing, the TSX60 can be the best place to start. These are the largest 60 stocks by market cap and filled with blue-chip companies – ones that have already provided years, if not decades, of stable income.
One of those reliable stocks is Thomson Reuters (TSX:TRI). This company has held a top spot for years. But could it remain a top choice for investors wanting to hold the stock for life?
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Recurring revenue
One of the best strategies when looking for investments is to look for companies with recurring revenue. This is revenue that comes in no matter what, and especially from essential industries. When it comes to Thomson Reuters, this is where it shines.
About 82% of the company’s revenue is recurring, concentrating on the “Big 3” segments of legal, corporates, and tax and accounting. These have grown about 9% organically. Therefore, the income stream is far less volatile than that of most other cyclical stocks on the TSX, including those on the TSX60.
Furthermore, legal and tax professionals rely heavily on TRI’s platforms daily, making these essential products that are embedded and sticky. Even during a downturn, businesses and law firms can’t simply cut ties from these subscriptions. That’s made even clearer from the company’s low beta of just 0.35.
Creating cash
Furthermore, all this cash generation isn’t just sticky, it’s growing. In fact, TRI reported during its most recent earnings that it expects about US$1.9 billion in free cash flow, more than enough to cover not just a dividend, but reinvestment!
In fact, TRI just increased its dividend yet again, marking the 32nd consecutive year of dividend increases. That’s far beyond Dividend Knight territory at this point. Furthermore, the last four years have seen 10% hikes each year! Even though the yield is a modest 1.4%, the reliability and pace of growth still makes it a safe dividend for any investor.
What’s more, with a payout ratio at about 64%, the dividend stock has room to pay the dividend, increase it, and still be able to make investments. That’s even more true given it just repaid US$1 billion notes to bring down net debt.
Long-term investing
Beyond dividends, TRI is putting its cash to work. This includes through artificial intelligence (AI) in its platforms. CoCounsel Legal with Deep Research on Westlaw give it new upsell for new clients across its customer base. If successful, the transition could expand margins even further, already at about 40% on an adjusted basis. That’s by deepening lock-in with clients who already rely on TRI for information, and now for decision support.
In fact, early execution is already promising with organic revenue growing 7% during the second quarter. Furthermore, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose 70 basis points, with TRI reaffirming full-year targets.
Now it’s true, the forward price-to-earnings (P/E) ratio is higher at about 39, above market averages. But you’re paying for quality and stability. And while growth depends on the success of AI features, you still get a little dividend of 1.4%.
Bottom line
So is TRI a no-brainer buy? There are few TSX60 stocks that combine the stability, recurring revenue, and consistent growth in both dividends and long-term innovation that TRI does. So if you’re looking for a stock to hold forever, it certainly checks the most important boxes.
