New Purchase THO

21 Dec 2014 03:31
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This month I initiated a small position in THOR Industries (THO) that should contribute $21 annually towards my 2015 dividends.

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Thor Industries specializes in Recreational Vehicles (RVs) as well as campers, special haulers, and custom buses. Their revenue over the last five years has increased year over year an average of 19% annually. Industry success is typically tied to the economy which currently accounts for most of the gains but one differentiator going forward will be retirees flush with cash looking to realize their dreams of traveling the country. Of course there are no guarantees that retirees will embrace this type of lifestyle and remains the one area of hesitancy I have and hence the small position I have started.

On the dividend front, THO has increased its dividend for 5 straight years with an average increase of 28% and if their 2015 dividend holds (I see no reason why not) then they are on pace to make it 6 straight years. There was some difficulty with interpreting the annual dividend totals as their were large fluctuations in 2009, 2012, & 2013. These fluctuations were due to special one time dividends of $0.5, $1.5 and $1 and annual payouts had to be adjusted to accommodate to see the underlying dividend growth.

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Other features I find attractive with THO lies within its balance sheet where it carries no long term debt, has $289M of cash and a current ratio of 2.45. An area of weakness or concern is their overall margins which have weakened over-time and currently gross profit margins shrank from 13.1% to 12.8%. Going forward THO management will eventually have to improve margins in order to maintain growth.

While some dividend growth investors might skip THO due to its low div yield (2%) I believe long term dividend growth prospects out weigh the low yield and in the long term will produce a commendable yield on cost. With an aggressive dividend growth rate I calculate a fair value range from $56.83 to $64.58 share price, with current share price as of 12/19/2014 of $55 per share this was under my low end price target and a value buy. I'm not sure this is my last buy for 2014, I have my eye on Qualcomm (QCOM) and Cummins (CMI), but odds are pretty good that it is.

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