Valuing The High Dividend Yield Giants Of The Rental And Leasing Services Industry

Includes: BOX-OLD, TGH, TRTN
by: Core Equity Research

As the stock market is becoming more and more volatile, investors are becoming more and more income - friendly. When you combine high dividend yields with high growth potentials, you get the perfect investment solution. I have chosen a few companies from the rental and leasing services industry that have a history of high dividend yields. I will analyze their financial positions in order to identify if they are good investments or not.

SeaCube Container Leasing Ltd. BOX-OLD operates as a container leasing company worldwide. The company has a dividend yield of 5.2%, with a payout ratio of 46%. The company has a net margin of 23.34% and a return - on - equity of 19.55%. The P/E of the company stands at 10 compared to the industry's average of 17.3 and it experienced a 3-year-average-revenue-growth of 11.9% compared to the industry's average 3 years growth of -0.7%. The industry's growth has been recorded in the negative territory for the past couple of years, whereas BOX is one of the companies that have posted positive growth over the same period.

TAL International Group, Inc. TAL in another container leasing company that acquires, leases and sells multiple types of intermodal containers. The company has a dividend yield of 6%, with a payout ratio of 56%. In addition to that, the company's five-year historical dividend growth rate is recorded at 11% whereas the company's annual EPS is expected to grow at CAGR of 27%. TAL has a P/E of 11 compared to the industry's average P/E of 17.3. The company's revenue grew at an average rate of 18.7% for a period of three years whereas its EPS experienced an average growth rate of 18.9% over the same period. The company is fundamentally strong, with operating profit of 54% and ROE of 22.1%.

The next high dividend yield giant from the same industry is Textainer Group Holdings Limited TGH with a dividend yield of 4.4% and a payout ratio of 41%. In the container leasing business, TGH is the global giant. It is the largest buyer and seller of new and used containers with a total fleet of 1.3 million containers.

Comparing the key metrics with the industry, TGH has a P/E of 10 compared to the industry's average P/E of 17.3. This company has the highest 3 year average revenue growth among its peers, recorded at 26.8%. The same is applicable for the 3 year average growth rate for EPS as it is posted at 28.2%. This giant is well positioned in the stock market with a PEG ratio of 1.0.

TGH's fundamental side is strong. TGH's net profit margin was posted at 42.5% compared to the industry's average net profit of 5.2%. The company has a better leverage compared to its peers, and the industry, and has an ROE of 24.5%.

Valuation & Conclusion

The companies are valued based upon the average multiples of the industry. P/E, P/B and P/S are used for valuation. The table below displays the price calculated via each multiple of the company and the relevant industry multiple. Further, every price outcome is combined in accordance with its calculating - multiple reliability (weights) to calculate a single target price that incorporates all the multiples based prices. The calculation is shown in the table:

All the companies, previously chosen, display a positive potential for price return. TAL offers an upside potential of 1%, TGH promises a return of 4% and BOX leads them all with a 15% upside based upon the industry metrics. For the investors targeting a high, stable dividend yield with a decent upside potential, BOX is a definite buy. Another buy option is TGH, which offers a high dividend yield of 6% and has the lowest debt to equity ratio and PEG. These two investments will provide good, regular income and a decent capital return to the investor.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.