Passive income has become increasingly important amid today’s uncertain economic environment, as it can provide financial stability while helping investors offset inflationary pressures. In addition, investors can boost their long-term returns by reinvesting dividends and benefitting from compounding.
One of the most convenient and cost-effective ways to generate passive income is by investing in monthly dividend-paying stocks. However, dividend payments are never guaranteed, making it essential for investors to focus on high-quality companies with strong underlying businesses and reliable cash-flow generation.
Against this backdrop, let’s evaluate the business outlook, growth prospects, dividend yield, and valuation of Savaria (TSX:SIS) to determine whether the stock offers an attractive buying opportunity for income-seeking investors.
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Savaria’s business outlook
Savaria provides accessibility solutions for individuals with physical disabilities across global markets. Supported by its extensive manufacturing footprint and broad distribution network, the company markets its products worldwide.
Savaria delivered a solid first-quarter performance in May, with revenue increasing 7% year over year to $235.5 million. Strong organic expansion of 5.7% and an additional 0.7% contribution from acquisitions completed over the past 12 months boosted its sales growth. Both operating segments posted healthy growth during the quarter, with revenue from the Accessibility segment rising 7.9% and the Patient Care segment growing 3.8%.
Supported by higher sales, the company’s gross profit increased 10.2% to $91.7 million, while its gross margin expanded by 110 basis points to 38.9%. Savaria also reported net income of $22.7 million during the quarter. Excluding one-time and special items, adjusted net income was $22.8 million, or $0.31 per share, up 34.8% from the prior-year period.
Meanwhile, adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) rose 18.4% year over year to $48.1 million, while the adjusted EBITDA margin improved by 190 basis points to 20.4%, reflecting the company’s improving operational efficiency.
Backed by strong financial performance, Savaria further strengthened its balance sheet during the quarter. Net debt declined from $191.5 million to $178.7 million, while its net debt-to-adjusted EBITDA ratio improved from 1.03 to 0.92. In addition, the company ended the quarter with $324 million in available funds, providing ample financial flexibility to support future growth initiatives.
Let’s now examine Savaria’s long-term growth prospects.
Savaria’s growth prospects
The growing aging population continues to create significant long-term growth opportunities for Savaria. As its addressable market expands, the company remains focused on developing innovative products and enhancing its manufacturing capabilities to serve its customers’ evolving needs. In addition, management plans to maintain an active acquisition strategy to broaden Savaria’s market presence and further strengthen its financial performance. Alongside these growth initiatives, the company is also working to improve gross margins through continuous operational improvements.
Building on the momentum of its “Savaria One” strategy, management has provided encouraging long-term guidance for the next five years. The company expects revenue to reach $1.6 billion by the end of 2030, representing an annualized growth rate of approximately 12%. Meanwhile, the adjusted EBITDA margin could remain above 20%, while adjusted EBITDA per share could climb to $4.25 by 2030.
Considering its favourable industry tailwinds, expansion initiatives, and improving profitability, I believe Savaria’s long-term growth prospects remain highly attractive.
Investors’ takeaway
Savaria currently pays a monthly dividend of $0.05 per share, yielding approximately 2%. In addition to its steady monthly payouts, investors can also benefit from long-term capital appreciation. Year to date, the company has delivered a total shareholder return of 11.7%, outperforming the broader equity markets.
Despite its solid recent performance, Savaria’s valuation remains reasonable, with the stock trading at approximately 2 times its projected next-12-month sales and 19.6 times expected earnings. Considering its strong financial performance, favourable long-term growth prospects, and attractive valuation, I believe Savaria represents a compelling investment opportunity for investors seeking both passive income and capital appreciation.
