August Idea of the Month: Stimulus, Greenery, and Recovery, and a huge yield while you wait? New Flyer Industries

By Travis Johnson, Stock Gumshoe, August 21, 2009

I’ve been asked many times to try to streamline my comments a bit, so we’ll see if I can’t get this Idea of the Month out in a couple fewer words than I’ve had the habit of producing … keep your fingers crossed!

New Flyer Industries is a leading bus manufacturer in North America, with a wide variety of buses in production, including standard diesel buses as well as electric trolleys and an array of hybrids, like its diesel-electric buses that have caught the attention of many for their increased efficiency.

It also trades as a hybrid security, an Income Deposit Security that is basically a corporate bond stapled to a share of stock, all designed to turn a steady business into a security with a dramatically high dividend yield (currently about 14%). They sell essentially all of their buses in North America, most of them in the United States and the rest in Canada, their home country.

This pick makes two in a row of these Idea of the Month articles that are for stocks that are designed to distribute the vast majority of their cash flow to shareholders — perhaps I’m just running scared from the market, or not believing in the recovery completely, but I do find a certain solace in getting my share of a company’s receipts on a nice, regular schedule (each month, in this case). I don’t personally own shares of New Flyer, but with the recent fall in their share price that came as a result of their weak earnings release for the second quarter and the deferral of one very big order, I think now may be a good time to take a closer look.

There are a couple things going in New Flyer’s favor over the next few years: big stimulus spending should prop up the state and local governments who do so much buying for transit fleets; and it seems likely that cleaner buses will increase in importance as urban areas continue to grow and see declining air quality … and, assuming a resurgence in oil prices, operators will continue to place a high emphasis on efficiency.

Unfortunately, there is also the flip side of that — New Flyer has a huge backlog of firm and option orders (kind of like Boeing might have) that allow them to plan for pretty solid utilization of their resources well ...

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