Valued at a market cap of $740 million, Martinrea International (TSX: MRE) is a Canadian automotive parts manufacturer specializing in lightweight structures and propulsion systems.
The company designs and produces control arms, subframes, body structures, engine blocks, transmission housings, and fluid management components, including brake lines and thermal systems.
Operating globally across North America, Europe, and international markets, Martinrea also manufactures suspension modules, structural fabrications, and metallic tanks.
The TSX stock is down 11% from its 52-week high, increasing its dividend yield to almost 2% in December 2025. Let’s see if you should own this Canadian dividend stock right now.
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Is this TSX stock a good buy?
Martinrea International delivered solid third-quarter results despite disruption from a cybersecurity attack at its key customer, Jaguar Land Rover, and ongoing tariff negotiations.
The Canadian auto parts manufacturer posted adjusted operating income of $65 million with margins improving to 5.5%, up 20 basis points year over year. Without mark-to-market stock compensation charges tied to share price gains, margins would have risen to 5.9%.
It generated free cash flow of $44.5 million in the third quarter (Q3), down from $57 million in the year-ago period, due to delayed receivables from the JLR cyber incident. Those receivables have since been collected in the current quarter.
Martinrea ended Q3 with a net debt of $768 million, down $24 million. Its debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio stands at 1.5 times, which is not too high. The management maintained full-year revenue guidance of between $4.8 billion and $5.1 billion, with an operating margin midpoint estimate of 5.6%.
North American operations performed well, given that the region reported an adjusted operating margin of 6.9%. North America now accounts for over three-quarters of production sales, which positions Martinrea favourably as manufacturing shifts back to the continent.
The company recently acquired Lyseon North America, a distressed bus parts manufacturer in Oklahoma, for a nominal price. This deal strengthens ties with International Truck while expanding the U.S. footprint to more than double the size of the Canadian operation.
Supply chain disruptions from the Novelis aluminum fire and the Nexperia semiconductor shortage created headwinds, particularly for fourth-quarter expectations. Electric vehicle volume declines also weighed on results as demand slowed following the expiration of U.S. tax credits. Some EV programs saw volume drops exceeding 80% between quarters.
Martinrea expects operating margins to expand in 2026. It also secured $30 million in new business awards in Q3 and won $1 billion in program extensions with existing customers. These extensions typically allow for better pricing to offset inflation while requiring less capital than new programs.
Martinrea continues to negotiate tariff relief with customers and expects to recover the vast majority of exposure by the end of 2025. It also sees significant opportunity from reshoring trends as OEMs (original equipment manufacturers) look to relocate production to North America amid evolving trade dynamics.
Is the TSX stock undervalued?
Analysts tracking Martinrea forecast adjusted earnings to expand from $1.93 per share in 2025 to $2.49 per share in 2027. In this period, free cash flow is projected to improve from $123.6 million to $154 million.
Given an annual dividend payout of $0.20 per share, Martinrea’s dividend expense is approximately $13 million, indicating a payout ratio of less than 10%.
If the TSX dividend stock is priced at six times forward FCF, which is reasonable, it could gain close to 24% over the next 12 months.
