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Monthly Dividend Stock In Focus: Mullen Group


Updated on October 16th, 2024 by Felix Martinez

Mullen Group (MLLGF) has two appealing investment characteristics:

#1: It is offering an above-average dividend yield of 5.8%.
#2: It pays dividends monthly instead of quarterly.
Related: List of monthly dividend stocks

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The combination of an above-average dividend yield and a monthly dividend makes Mullen Group appealing to income-oriented investors. In addition, the company is one of the largest logistics providers in Canada, with an immense network and strong business momentum. In this article, we will discuss Mullen Group’s prospects.

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Business Overview

Mullen Group is one of the largest logistics providers in Canada.  It started with just one truck in 1949 and has become an immense logistics provider with 40 business units. It is headquartered in Okotoks, Alberta, Canada.

Its network of independently operated businesses provides a wide range of service offerings, including less-than-truckload, truckload, warehousing, logistics, transload, oversized, third-party logistics and specialized hauling transportation.  In addition, the company provides diverse specialized services related to the energy, mining, forestry, and construction industries in western Canada, including water management, fluid hauling and environmental reclamation.

Mullen Group operates in four business segments: Less Than Truckload, Logistics & Warehousing, Specialized & Industrial Services, and the U.S. & International Logistics segment.

The Less Than Truckload segment is the largest first and final-mile network in western Canada and Ontario.

Source: Investor Presentation

This segment is tied to consumer needs and offers delivery services with controlled temperatures throughout the delivery. It has 11 business units, more than 168 terminals, and more than 5400 points of service. This segment performs more than 3 million deliveries every year.

The Logistics and Warehousing segment has 11 business units and is focused on North America.

Source: Investor Presentation

This segment has approximately 20,000 subcontract trucks and operates under an integrated technology platform.

As a logistics company, Mullen Group is sensitive to the underlying economic conditions and, hence, vulnerable to recessions. The company incurred a 22% decrease in its earnings per share in 2020 due to the fierce recession and the supply chain disruptions caused by the coronavirus crisis.

However, thanks to the massive distribution of vaccines worldwide, the pandemic has subsided, and the economy has recovered. As a result, Mullen Group has fully recovered from the pandemic. It exceeded its pre-pandemic profits in 2021 and posted 9-year high earnings per share of $1.20 in 2022.

The company reported its financial and operating results for the second quarter of 2024, showing stable revenue growth driven by acquisitions despite challenging market conditions. Revenue for the quarter was $495.6 million, a slight increase from the previous year, supported by acquisitions that added $26.9 million. The company also reported an operating income before depreciation and amortization (OIBDA) of $85.7 million, up 2.8% from the prior year. However, net income declined by 9.9% to $32.9 million, largely due to higher depreciation and financing costs.

Chair and Senior Executive Officer Murray K. Mullen noted the positive impact of acquisitions on the company’s performance, emphasizing that growing through acquisitions is crucial in the current economic environment marked by high interest rates and inflation. The company bolstered its balance sheet with approximately $400 million of new debt and expanded credit facilities, increasing available credit to $525 million. Mullen also highlighted that the Canadian economy is facing challenges, such as reduced private sector capital investment, which is affecting several of the company’s 40 business units.

Mullen Group’s business segments showed mixed performance during the quarter. The Less-Than-Truckload (LTL) segment saw a 1.9% decline in revenue, while the Logistics and Warehousing (L&W) segment grew by 5.6%, primarily due to acquisitions. The Specialized and Industrial Services (S&I) segment also experienced growth, with a 2.1% increase in revenue driven by higher activity in Western Canada. The company also announced a 16.7% increase in its monthly dividend, effective in September 2024.

Growth Prospects

Mullen Group tries to grow its earnings in many ways. It seeks opportunities to expand its network, optimize its existing operations, and minimize costs to enhance its operating margins. Overall, management has preferred enhancing operating margins instead of gaining market share at all costs.

On the other hand, the company has failed to grow its earnings per share over the last nine years. In fact, it has incurred an 18% decrease in its earnings per share over this period, primarily due to the depreciation of the Canadian dollar vs. the USD. Investors should also be aware that the company will likely face a fading tailwind from the strong economic recovery from the pandemic, as the aggressive interest rate hikes of central banks in response to sky-high inflation have caused an economic slowdown. Overall, given the solid business model of Mullen Group but also its lackluster performance record and the economic slowdown, we expect approximately flat earnings per share five years from now.

Dividend & Valuation Analysis

Mullen Group is currently offering an above-average dividend yield of 5.8%, which is more than triple the 1.3% yield of the S&P 500. The stock is thus an interesting candidate for income-oriented investors but U.S. investors should be aware that the dividend they receive is affected by the prevailing exchange rate between the Canadian dollar and the USD.

Mullen Group has a payout ratio of 62%, which is healthy. In addition, the company has a strong balance sheet. Its interest expense currently consumes only 5.2 times its operating income, while its net debt is at $913 million, which is only 98% of the stock’s market capitalization. As a result, the company is not likely to cut its dividend significantly anytime soon.

On the other hand, it is important to note that Mullen Group has significantly reduced its dividend over the last decade. To be sure, the company has offered a dividend of $0.57 over the last 12 months. This dividend is 52% lower than the dividend of $1.17, which the company offered in 2013.

The significant dividend reduction has resulted not only from the depreciation of the Canadian dollar vs. the USD but also from a decline in the company’s earnings per share amid volatile business performance. To cut a long story short, Mullen Group is offering an above-average dividend yield of 5.8%, but it is prudent for U.S. investors to expect minimum dividend growth going forward.

In reference to valuation, Mullen Group has traded for 10.8x times its earnings per share in the last 12 months. Given the company’s strong business model but also its volatile performance record, we assume a fair price-to-earnings ratio of 10.0x for the stock. Therefore, the current earnings multiple is somewhat higher than our assumed fair price-to-earnings ratio. If the stock trades at its fair valuation level in five years, it will have a -0.8% annualized compression in its returns.

Taking into account the flat earnings per share, the 5.8% dividend yield, and a -0.8% annualized compression of valuation level, Mullen Group could offer a 5.0% average annual total return over the next five years. This is a modest expected total return, and hence, we recommend waiting for a significantly lower entry point to enhance the margin of safety and increase the expected return from the stock.

Final Thoughts

Mullen Group has a dominant position in its business thanks to its immense network. However, the company has exhibited a volatile performance record and has failed to grow its earnings per share over the last nine years. Therefore, investors should make sure to establish a wide margin of safety before investing in this stock.

Mullen Group is offering an above-average dividend yield of 5.8%. The company has a solid payout ratio of 62% and a strong balance sheet. As a result, its dividend should be considered safe, though investors should not expect meaningful dividend growth anytime soon. Overall, the stock seems almost fully valued right now, and hence investors should wait for a more attractive entry point in order to enhance their future returns.

Moreover, Mullen Group is characterized by extremely low trading volume. This means that it may be hard to establish or sell a large position in this stock.

Don’t miss the resources below for more monthly dividend stock investing research.

And see the resources below for more compelling investment ideas for dividend growth stocks and/or high-yield investment securities.

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