An investor’s portfolio strategy has to change with the times. Stock market investing in a slow-growth world requires more effort; there’s no more wind at your portfolio’s back in this environment. Individual stock selection is key to optimal performance.
There are plenty of successful companies out there in a stagnant economy. I always like a handful of esoteric businesses or special situations in an equity market portfolio. These can be well-established businesses selling proven brands that hold up when times get tough.
Stock Market Investing for a Slow-Growth World
One business that falls into this category is The Toro Company (NYSE/TTC) out of Bloomington, Minnesota. Is this a high-tech darling that’s on the front page of the business section every week? No, it isn’t.
But Toro makes products that the marketplace needs on a consistent basis. The fact of the matter is that turf maintenance and irrigation equipment are good, solid businesses to be in.
Selling mostly to the professional market, the company offers specialized equipment for golf courses and sports fields as well as snow removal equipment. Toro sells to customers in agriculture, the contractor market, government, and rental businesses.
According to the company, its 2015 fiscal first quarter, ended January 30, 2015, saw sales grow 6.3% to $474.2 million, representing a new quarterly record.
Professional segment earnings improved nicely in its first quarter. The addition of snow and ice product management helped drive first-quarter professional market earnings up 17.3% to $55.7 million.
Net earnings per share in Toro’s first quarter of 2015 grew 23% to $0.54 and management boosted its full-year guidance.
This fiscal year, Toro expects its total sales to grow between eight percent and 10%. This is not earth-shattering, but, even as a mature business selling in a competitive market, this rate of growth beats the general economy. This year’s bottom line should improve by double digits once again.
Is a Small Dividend Yield Even Worth it?
Small dividend yield is worthwhile for a lot of companies because the dividends whet the appetite of investors who perhaps would be unwilling to consider the stock otherwise.
Toro’s current dividend yield is approximately 1.5%, which isn’t huge. But, the company has a good track record of increasing its dividends.
Resilience in an enterprise is an unappreciated trait, which is especially the case in a slow-growth world.
Even aggressive equity portfolios can benefit by holding a few stable businesses like Toro; the kind of companies that are recession-resistant and remain nicely profitable.
In today’s world, any company able to produce close to double-digit top and bottom line growth is worth watching. (See “Stock Market Investing in a Market About to Turn; What Kind of Stocks Should You Look at?”)
I put Toro under the category of “special situation” because of its brand strength among professional market customers for turf maintenance and irrigation equipment. The company is now selling residential irrigation equipment that can be retrofitted into existing systems in order to deal with water restrictions, like in California.
For a slow-growth world, brand loyalty counts. And Toro’s got plenty of it. The stock is therefore a proven wealth creator.