Is TFI International Inc. Run by the Next Henry Singleton?

The CEO of TFI International Inc. (TSX:TFII) could be looked back on as one of the all-time greats.

| More on:
The Motley Fool

In his excellent book, The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success, William N. Thorndike Jr. wrote about eight CEOs who had provided shareholders of their companies’ superior returns to the markets and peers. These CEOs had a few things in common. They ran large businesses that had decentralized operations with different business units operating mostly independently. They used debt to fund many accretive acquisitions and repurchased large amounts of their own stock.

Henry Singleton is a relatively unknown titan who, in the 37 years he ran Teledyne, delivered annual returns of 20.4%. Teledyne had all of the characteristics above during his time. And while you may not be able to invest in a company run by Henry Singleton now, you can have the next best thing.

TFI International Inc. (TSX:TFII) is run by Alain Bedard and has trucking and logistics operations in Canada, the U.S., and Mexico. TFI has grown through acquisition, purchasing small trucking companies to break into new markets. In the past five years, TFI has grown EPS by 15.3% annually and shares have returned 187% vs. 147% for the TSX.

Most importantly for investors, Alain continues to be devoted to increasing per-share value.

Returning cash to shareholders

Owning shares in a company means you own a percentage of the free cash flow of the company. But most companies do not return much of that cash directly to shareholders. In 2016, TFI spent over $1.5 million buying back 6.4 million shares, and paid out another $64.1 million as dividends. Through six months of 2017, TFI has bought back another 1.5 million shares and paid out $0.38 per share in dividends.

The dividend yield of TFI right now is 2.6%, and it is growing; it’s grown from $0.46 annually in 2011 to $0.76 in 2017.

Alain clearly sees TFI stock as undervalued, and a lot of money goes towards buying back shares. If the company once again maxes out the share buyback (six million shares in 2017), it works out to a “buy-back” yield of 6%.

When you put it all together, TFI offers shareholders a yield of 8.6%, so you can see Alain is running the company in your best interest.

Valuation

On the most recent conference call, Alain reiterated his guidance that TFI will earn approximately $2.89 in free cash flow after adjusting for a large one-time tax bill. At the current price, TFI trades at just 10.1 times free cash flow. So, not only should TFI grow at above market rates in the future, but it’s objectively cheap now and the share price should appreciate just to catch up to the market.

Conclusion

Alain Bedard has built and is continuing to build a special company in TFI. And not only is he growing revenue and earnings, but he is dedicated to increasing the value of shares. If people study him, they’ll see that Alain shares many similarities with the great Henry Singleton. Shareholders of Teledyne were very happy with Henry Singleton at the helm, and I think TFI shareholders will be happy with their returns as long as Alain Bedard is CEO.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tyler Kirkpatrick has no position in any stocks mentioned.

More on Dividend Stocks

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »

how to save money
Dividend Stocks

The Smartest Dividend Stocks to Buy With $200 Right Now

These smartest dividend stocks can consistently pay and increase their dividends in the coming years, irrespective of the macro uncertainty.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

3 Utility Stocks That Are Smart Buys for Canadians in November

These utility stocks benefit from regulated businesses and generate predictable cash flows that support higher dividend payouts.

Read more »

Start line on the highway
Dividend Stocks

Invest $10,000 in This Dividend Stock for $600 in Passive Income

Do you want to generate passive income? Forget the rental unit! This option will save you the mortgage yet still…

Read more »

Senior uses a laptop computer
Dividend Stocks

1 Reliable Dividend Stock for the Ultimate Retirement Income Stream

TD Bank (TSX:TD) shares are way too cheap with way too swollen a yield for retirees to pass up right…

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

Is Brookfield Infrastructure Partners a Buy for its 4.75% Yield?

Brookfield Infrastructure Partners (BIP) has a 4.75% dividend yield. Is it worth it?

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »