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Techtronic Industries Co Ltd: Growing Dividends and Profits

Techtronic Industries Co Ltd (SEHK: 669), also known as TTI, is a Hong Kong-listed company engaged in the manufacturing and trading of electrical and electronic products. The company is a component stock of the benchmark Hang Seng Index, which has some of the largest Hong Kong shares.

TTI has two main divisions – power equipment and floor care and appliances. Power equipment comprises products such as power tools, accessories and hand tools, while floor care sells products used for home improvement and repairs such as vacuum cleaners.

The firm also has a strong portfolio of brands such as Milwaukee, Ryobi, and Hoover, and their products are recognised worldwide for their high quality and great performance.

Investors may wonder though – while TTI has a great product range, does this also make the company a reliable dividend and profit generator? Let’s look at a few aspects to determine this.

Revenue and net profit growth

Source: TTI FY 2018 Annual Report

From the table above, it can be seen that TTI’s revenue has been increasing every single year since 2014, from US$4.8 billion to US$7 billion, for a compound annual growth rate (CAGR) of around 10.5%.

Net profit has similarly increased along with revenue but at a higher CAGR of 16.5% per annum.

What’s even more impressive is that net margins (taken as profit attributable to owners divided by revenue) have been increasing every single year since 2014. Net margin started off at 6.3% in 2014 but has steadily climbed to 7.9% in 2018.

Consistent free cash flow

Turning to free cash flow (FCF), TTI also has a stellar track record of consistent FCF generation in the past five years.

Note that operating cash flow has even increased steadily over the years as revenue and profits rose, resulting in FCF of nearly US$400 million in 2018, up from just US$84.1 million back in 2014. That is a very impressive rate of growth for FCF – expanding nearly five-fold in just four years.

Rapidly increasing dividends

TTI has been growing its dividend by an impressive clip year-on-year for the last four years. In the table above, you can see that the increase every year is between 20% to 35%, and is supported by the increased amount of FCF generated by the business, as well as profits.

From just 4.05 US cents per share in 2014, the total dividend per share (DPS) has nearly tripled to 11.33 US cents in 2018. At TTI’s last traded price of HK$53.10, this represents a dividend yield of around 1.7%.

Great dividend-grower to own

From the above, I conclude that TTI is a great company to own and has been rapidly expanding both its dividends and profits. Management is forward-looking and continually invests in R&D to ensure they are ahead of the curve, while the group has strong and recognisable brands it can leverage on for better sales performance.

TTI also generates strong FCF and has also shown a willingness to massively increase its DPS – a sign of solid corporate governance that takes shareholders’ interests into account.

The main risk for TTI is a potential recession in the US that may dampen consumer spending and result in weakened demand for its products. But with a strong financial position, investors should make use of such an opportunity to accumulate shares on the cheap.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Royston Yang does not own shares in any of the companies mentioned.