Thor Industries: Long-Term Returns At An Attractive Price

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 |  About: Thor Industries, Inc. (THO)
by: Eric Landis

Coming Up With A Plan

Over the course of the last few weeks, I have gone through the steps of reconstructing my 401k portfolio from a basic, mutual fund heavy, monthly deposit and forget it type of investing methodology to a more active approach using the principles of Dividend Growth Investing. After reading the book "The Single Best Investment" by Lowell Miller and reading articles and blogs by some of the regular DGI disciples on Seeking Alpha, it became my goal to find 30 companies that have shown a history of solid returns to shareholders through the use of growing dividend distributions.

Finding The Company

I used lists from several websites in searching for my prospective stocks and came up with the typical Clorox (NYSE:CLX), McDonald's (NYSE:MCD) and Johnson & Johnson (NYSE:JNJ) tickers that we have all come to know and love, but in looking at Robert Allen Schwartz's dividend growth information web site, one name kept popping up on my searches that I had never heard of before, Thor Industries Incorporated (NYSE:THO).

Looking at the compound annual growth rates for dividends, beginning in 1987, Thor Industries consistently appears in the top 20 rankings of companies with a history of growing their dividends. Since 1987, Thor Industries has grown the dividend payout by an average of 23.3%, topped only by Home Depot (NYSE:HD) and Molex Incorporated (NASDAQ:MOLX). Going further, from 1987 to 2003 Thor Industries appeared on the top 25 list every year. While it hasn't been listed in the top 25 since then, Thor Industries has still grown the dividend at a very impressive 25% compounded annual rate from 2004 to 2012.

History of Conservative Management

Thor Industries is a good example of a disciplined company that is ready for lean times by maintaining a solid balance sheet. This has enabled the company to continue rewarding shareholders, even through difficult times.

Thor Industries carries no long term debt, has $107 million in cash as of January 2013 and pays out just 26% of earnings for dividends. This conservative management allowed Thor to not only maintain its dividend rate during the Great Recession of 2008-2009, when the company's net income dropped from $134.7M in 2007 to $17.1M in 2009, but to actually increase it by paying out an extra $0.50 special dividend on top of the regular dividend in October of 2009.

Since that time, management has increased the annual regular dividend from $0.28/share in 2010 to the current $0.72/share and additionally paid out another $1.50/share special dividend in December of 2012. The current payout provides a yield of around 1.9%. In addition to the dividend, THO also bought back 2.1 million shares during 2012, lowering shares outstanding by 3.8%. The combination of an increasing dividend payout along with frequent special dividends has rewarded shareholders who've stayed the course through tougher times.

Looking Forward

Increasing dividends are great to have, but earnings growth is needed along the way to back it up. Thor Industries released preliminary sales on February 4 and had good things to say about the most recent quarter:

Preliminary consolidated sales in the second quarter were $741.4 million, up 24.2% from $597.0 million in the second quarter last year. RV sales were $636.1 million, up 27.0% from $501.0 million in last year's second quarter. Towable RV sales for the second quarter were $522.4 million, up 17.6% from $444.2 million in the second quarter of fiscal 2012. Motorized RV sales in the second quarter more than doubled to $113.7 million from $56.8 million in the same quarter a year ago. Bus sales were $105.3 million, up 9.7% from $96.0 million in the second quarter last year.

Consolidated backlog on January 31, 2013 was $822.0 million, up 27.1% from $646.9 million last year. RV backlog was $616.6 million, up 49.4% from $412.8 million at the end of the second quarter of fiscal 2012. Towable RV backlog increased 25.2% to $375.4 million from $299.9 million at the end of the second quarter of fiscal 2012. Motorized RV backlog more than doubled to $241.2 million from $112.9 million at the end of the second quarter of fiscal 2012. Bus backlog was $205.4 million, compared to $234.1 million at the end of the second quarter of fiscal 2012.

"Thor achieved solid gains in revenue for the second quarter ending January 31, 2013 as the momentum of our RV products introduced in the fall continued at Louisville in late November. Indications from the early RV retail shows have been very positive, with increased traffic and higher sales levels, reflecting continued strength in our industry," said Peter B. Orthwein, Thor Chairman & CEO.

The preliminary sales shown above are about $25M above the average estimates by analysts, who are currently projecting Thor Industries to earn $0.37 per share for the quarter, an increase of 49% over the $0.25 reported in 2012. Analysts are also projecting a 5 year forward growth rate of 14%, which results in an attractive PEG ratio of just 0.9 for the company.

Concerns

Potential headwinds facing Thor Industries include higher gasoline prices leading to fewer recreational activities for consumers and lower demand for RV's. Competition from other manufacturers could also lead to lower margins going forward as discussed by management in the February 4 release:

"Despite the improvements in RV sales, the overall environment in the towables market remains very competitive, and elevated levels of incentives associated with orders placed at the fall Open House are reflected in our sales and our second-quarter operating results that we expect to report on March 7. In addition, the bus business continued to be characterized by aggressive competition during the second quarter," he added.

Conclusion

Thor Industries has shown a consistent track record of conservative growth and solid shareholder returns. While not quite at the 3% yield level that some dividend growth investors require, I believe the 1.9% yield coupled with a consistent 25% dividend growth rate and frequent special dividends makes this an attractive stock to hold for the long term.

With the recent pullback of nearly 20% from the 52-week high of $45.75 set back in November, this appears to be an attractive entry point for the stock. Last week I pulled the trigger and added Thor Industries as one of the 30 new stocks to build my Dividend Growth Portfolio with. I have no plans to make any additional purchases at this time, but will be following Thor Industries closely as additional money become available in the account for future investing.

Disclosure: I am long THO, CLX, MCD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.