A Tax-Free Savings Account (TFSA) is a powerful tool for building long-term wealth, allowing investors to earn tax-free returns through both capital appreciation and dividend income on contributions made within their available contribution room. However, investors should exercise caution, as selling investments at a loss within a TFSA can permanently reduce the account’s long-term tax-free growth potential.
With this in mind, investors should focus on high-quality companies with well-established businesses, reliable cash flows, and a consistent history of dividend payments. Against this backdrop, let’s examine Savaria (TSX:SIS), including its business outlook, recent financial performance, dividend profile, growth prospects, and valuation, to determine whether the stock deserves a place in a long-term TFSA portfolio.
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Savaria’s business outlook
Savaria designs, manufactures, distributes, and installs accessibility and mobility solutions that enhance the comfort, independence, and quality of life of people with physical limitations. Backed by an extensive manufacturing footprint and a strong global distribution network, the company markets its products in numerous countries worldwide. Its resilient business model and consistent execution have translated into impressive long-term shareholder returns, with the stock generating approximately 370% over the past decade, representing an annualized return of 16.7%.
Savaria also pays a reliable monthly dividend to shareholders. The company currently pays $0.0467 per share each month, representing a forward dividend yield of 1.79%.
The company’s financial performance remained strong in the first quarter. Revenue increased 7% year over year to $235.5 million, driven by 5.7% organic growth, while acquisitions and favourable foreign exchange contributed an additional 0.7% and 0.6%, respectively. Gross profit rose 10.2%, and gross margin expanded by 110 basis points to 38.9%. Meanwhile, the implementation of its Savaria One initiative helped lift operating margin by 440 basis points to 14%.
Profitability continued to improve, with adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) increasing 18.5% and the adjusted EBITDA margin expanding from 18.5% to 20.4%. Savaria also generated $35.8 million in operating cash flow during the quarter, providing ample flexibility to fund capital investments, acquisitions, research and development, lease obligations, taxes, and dividend payments. In addition, its balance sheet strengthened further, with the net debt-to-adjusted EBITDA ratio improving to 0.92 from 1.03 at the end of last year.
Having reviewed Savaria’s strong first-quarter performance, let’s now examine its long-term growth prospects.
Savaria’s growth prospects
Favourable demographic trends, particularly the rapidly aging global population, continue to create strong long-term demand for Savaria’s accessibility and mobility solutions. To capitalize on this opportunity, the company is investing in product innovation to strengthen its competitive position, expanding its manufacturing capabilities, improving operational efficiency, and pursuing strategic acquisitions to broaden its geographic reach and product portfolio.
Management also expects the implementation of its Savaria One initiative to support continued operational improvements and sustained financial growth. The company is targeting revenue of approximately $1.6 billion by 2030, representing a compound annual growth rate of about 12%, while maintaining an adjusted EBITDA margin above 20%. In addition, management expects adjusted EBITDA per share to reach $4.25 by 2030, implying an annualized growth rate of approximately 10.4%.
Given these favourable industry tailwinds, strategic growth initiatives, and ambitious long-term financial targets, I believe Savaria is well-positioned to deliver healthy growth in the years ahead.
Investors’ takeaway
Savaria has delivered a strong return over the past 12 months, with its stock price gaining approximately 63%. Despite this impressive rally, its valuation remains reasonable, trading at 21.9 times next-12-month (NTM) earnings and 2.3 times NTM sales.
Backed by a resilient business model, expanding margins, and attractive long-term growth prospects, Savaria appears well-positioned to continue delivering solid shareholder returns while maintaining its monthly dividend, making it a compelling addition to a long-term TFSA portfolio.
