Dividend Aristocrat Magna International

MG - Magna InternationalInvesting in Magna International TSE:MGNYSE:MGA is really investing in the overall auto industry. It is cyclical but you avoid exposure to specific brands due to Magna’s business across multiple car manufacturers. In fact, their operations span 4 continents and 28 countries. It’s one of those companies that can provide you with international exposure as well.

Magna’s Business Segments

To see how much Magna can contribute to a vehicle, you only have to look at the list of segments it operates in. You can dig deeper to find even more components they are involved with. If it’s in a car, it looks like Magna can make it.

  • Body & Chassis
  • Powertrain
  • Exteriors
  • Interiors
  • Seatings
  • Vision Systems
  • Closures
  • Roof Systems
  • Electronics
  • Vehicle Engineering & Contract Manufacturing

Dividend Growth

Since the financial crisis, Magna has really been shareholder friendly. It boast a 76% CAGR dividend growth over the past 5 years while having a 7.46% CAGR over the past 10 years. Magna’s management appears serious about increasing dividends since the financial crisis with a 5 year dividend increase and a current dividend yield of 1.31% post split and including a 15% dividend raise.

The dividend ratio is very conservative with a 27% payout which is up from around 20% 10 years ago. The payout increase does highlight a new shareholder friendly approach.

Magna just approved a 2-for-1 split and receives a 70% buy score from my metrics.

Growth & International Exposure

This blue chip stock provides part to many automobile manufacturers through their operations across the world. They are positioned to provide services to any car companies. Over the years, Magna has been acquiring many companies from the car companies to expend its business and operations which also allows them to continue servicing those car companies.

Here is a snap shot of their operation locations.

Magna World Wide Presence

Future & Electric Vehicles

Magna Concept CarMagna has not been waiting for contracts to land on its plate either, it has taken initiatives to get positioned in the electric vehicle segment by purchasing BluWav Systems and initiating vehicle conversion to prove its abilities.

At the recent 2015 Geneva Auto Show, Magna also showed a plugin hybrid concept sports car highlighting their capabilities in a global supply chain.

An Investment Opportunity?

Now that we have look at the business and assess the sustainability. What about its ability to grow revenues? It’s clear that in the past 5 years, their dividends have grown remarkably while only increasing their payout ratio slightly by going from 20% to just around 30%. They have also been repurchasing shares for a total of 1.8B$.

In 2010, the dual share structure was changed in order to unlock potential in the company’s value as it was felt the dual structure was undervaluing Magna’s share price.

Their sales are also growing thanks to their partnership with Mercedes, BMW, Audi, Dodge and Ford. Growth is present in all regions depending on where the vehicle manufacturers assemble their vehicles.

Magna Sales

So far I like what I see in the business. Whether the markets focus on fuel, hybrid or electric cars, Magna is behind it. We are certainly not done using vehicles to get around and Magna is positioning itself as being able to provide services to all the vehicle brands.

It is important to know that the vehicle market is cyclical and Magna can be impacted as well. A this point, I think it’s worth putting Magna on your watch list.

Disclaimer: I do not own any Magna shares at the time of writing. The data was provided from Magna’s website and annual reports.

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