My first purchase of 2015! I added to my position in Magna International Inc (MG.TO) (MGA). Magna is a globally diversified automotive supplier headquartered in Aurora, Ontario, Canada. In 2012 it was the largest automobile parts manufacturer in North America by sales of original equipment parts. Its operating groups include Magna Steyr, Magna Powertrain, Magna Exteriors, Magna Interiors, Magna Seating, Magna Closures, Magna Mirrors, Magna Electronics and Cosma International. Customers include General Motors (GM), Ford Motor Company (F), Chrysler LLC, Tesla (TSLA), BMW, Mercedes-Benz, Audi, Volkswagen, Land Rover, Toyota, and Honda to name a few (the customer list is too long from different divisions to include all names).
Because all numbers reported by Magna Internatonal are in US$, this article unless otherwise specified uses US$. However, for my investment, I bought the Canadian listed stock (MG.TO) to avoid currency conversion hits. I added 10 shares of MG.TO to my portfolio (bringing my total to 25 shares) at a price of CAD$123.50, which adds (approx, because dividends are declared in US$, but converted when payed out for the Canadian listed stock) $17.20 to my FY annual dividends.
Recent Buy Decision
- Not much has changed in the fundamentals since I first added this company to my portfolio in November 2014.
- Considering that it is a globally diversified company, with the bulk of the operations the US (51% of the revenue), I get more US and International exposure by investing in a Canadian company. This is part of my plan on leveraging the strengthening US dollar (I will have a separate blog post on this in the coming days).
- I wanted to add to my position before the next dividend increase announcement in March 2015.
From my Nov 2014 post, the following points are what attracted me first to Magna International.
- Magna International Inc is a strong industrial company (although the official categorization is Consumer Discretionary) with a great track record.
- Automotive customers with a worldwide customer base – customers include almost every major car manufacturer in the world.
- Global revenue diversification. According to the 2013 annual report, the revenue breakdown is as follows: 51% from N.America, 41% from Europe, 4.4% from Asia-Pacific and 6% from other. The company is also expanding its operations in Asia. Magna is established and operational in China for over a decade now and in September 2014 announced opening two new facilities in India.
- Solid fundamentals. Looking over the books, its really hard to find a bad spot in the metrics for the company’s valuation.
- Revenue of US$36.5B and only 220M shares.
- Great fundamentals: P/E = 12.55, Forward P/E = 10.29, PEG = 0.80.
- Analysts expect earnings to grow by 15% for the next five years.
- Low debt: Debt/Equity = 0.12
- Dividend payout ratio = 18.5%
- Dividend grower for 5 years, with a 5-yr DGR of 76%
- The company also announced a buyback program of 20M shares, which is approx 9.8% of its total outstanding shares.
- According to my dividend stock analysis, using a variety of different valuation methods – the fair value is $132.42, which means the stock is currently 20% undervalued.
While the revenue is well diversified, both in customer base and geographical perspective – slowdowns and bankruptcies in the the auto industry could provide problems for the company. A severe recession or other slowdowns will affect the company’s finances.
Magna International Inc is a well run global company and a leader in the field. The customer base includes almost every major automaker in the world and is well diversified geographically. The company has a bright road ahead with established and new operations in emerging economies like China and India. The stock may have a low starting dividend yield, but the low payout ratio suggests that those dividends can grow at a rapid pace in the coming years.
Summary of the stock:
- Symbol: MGA (also trades as MG on TSX)
- Quote: $104.98
- 52-week range: $78.89 – $114.48
- P/E: 12.55
- Forward P/E: 10.29
- PEG ratio: 0.80
- Debt-to-Equity: 0.12
- Yield: 1.46%
- Payout ratio: 17.40%
- 5-yr DGR: 76%
My portfolio is available here.