Last week I took advantage of the Friday market downturn. I bought shares of four companies, WMT, CMI, ADM, and Magna International. This post is about Magna. MGA is not typically a stock seen on most DGI bloggers portfolios. I suspect this is due to a dividend yield under 3%, or the fact that MGA cut it’s dividend in 2009, or the industry MGA operates in. MGA manufactures automotive components. Auto stocks are traditionally not the favorites of many DGI investors. However, when I can buy a stock in a sector I don’t have money invested in at a fair price, I go for it. I bought 35 shares of Magna International, (NYSE: MGA) at $41.72 per share, totaling $1,470.38. This buy adds $30 to my annual dividend income.
Magna International Overview
Magna International Inc. (Magna) is an automotive supplier with approximately 313 manufacturing operations and over 84 product development, engineering and sales centers in approximately 28 countries. Its product capabilities include producing body, chassis, interior, exterior, seating, powertrain, electronic, vision, closure and roof systems and modules, as well as vehicle engineering and contract manufacturing. Its customers include General Motors, Fiat-Chrysler, Ford, BMW, Daimler and Volkswagen. Its offers programs, which include Ford Transit; MINI Countryman; Ford F-Series and F-Series Super Duty; QOROS 3; Ford Mustang; BMW X6; Mercedes-Benz M-Class; BMW X4 and Porsche Panamera. The Company operates in North America, Europe and Asia. Source: www.schwab.com.
Magna International Dividends
- Annual Dividend Yield of 2.13%
- Annual Dividend Rate (IAD) $0.88
- Payout Ratio (TTM) of 17.44%
- Dividend Coverage Ratio (TTM) of 573.26%
- 3 Year Dividend Growth Rate of 15%
- 5 Year Dividend Growth Rate of 76%
- 10 Year Dividend Growth Rate of 7.5%
The chart below shows the past eight years of dividend history for Magna International. MGA cut its dividend by 86% in 2009, however the company has quickly rebuilt its dividend policy with 76% growth over the past 5 years. 2009 was a horrible year for automakers, which led to Magna’s dividend cut.
Magna International Valuation
- S&P Capital IQ ranks MGA as 5-stars, a strong buy with a fair value calculation of $52.40 and a 12-month target price of $62.
- Morningstar ranks MGA as a hold, 3-stars with a fair value of $42.
The F.A.S.T Graph below shows that Magna is below the blue line for the first time in 3 years. For those of you unfamiliar with this tool, when the black line falls below the blue line this indicates a stock is undervalued. So MGA is slightly undervalued.
Magna International fills an open gap in my portfolio. I am heavy in Energy, Bio-tech, Tech, but not automotive. This was a primary reason for my purchase. Magna has a lot of cash on hand and a very low payout ratio of 17.44%. This low payout leaves a large cushion for dividend protection in down times, and the potential for large dividend increases in the future. By getting in under $42 per share, I feel that this is a good buy.
What do you think of my Magna International buy? Are you an MGA shareholder?
Full Disclosure: Long MGA