Polaris (PII) is not the type of company you’d expect would be able to pay reliable and consistent dividends over the long run. The company operates in the highly cyclical motorcycle, ATV, and snowmobile industries. And yet, Polaris has managed to increase its dividend payments for an impressive 28 consecutive years, highlights Ben Reynolds, editor of Sure Dividend.
This is a period that spans both the Great Recession of 2009 and the 2020 COVID-19 pandemic. Just as impressive, the company has been profitable every year since it went public in 1987. This level of profitability in a highly cyclical industry is very unusual.
Polaris’ price-to-earnings ratio does not reflect its history of success. The company’s stock was recently trading hands for just 9.1 times our expected fiscal 2023 earnings per share of $9.78. This low price-to-earnings ratio would make sense for a mediocre business, but that isn’t Polaris.
Polaris has compounded its earnings per share at 7.6% annually from 2013 through fiscal 2022. The company is expecting a small decline in earnings per share in fiscal 2023, but the long-term trend for the company has been positive.
And management is using recent weakness to repurchase shares thanks to the company’s strong cash flows. The company has repurchased $286 million in shares over the last 12 months. For comparison, the company’s current market cap is ~$5 billion, so Polaris has repurchased more than 5% of its market cap over the last 12 months. The company still has ~$204 million remaining on its current share repurchase program.
In addition to share repurchases, Polaris stock recently offered a 2.9% dividend yield. This solid yield combined with share repurchases means the company’s management is returning more than 8% annually to shareholders through share repurchases and dividends.
A healthy capital return program bodes well for shareholders. If Polaris returns to growth – which is highly likely to occur in the next few years given the company’s favorable long-term record – then shareholders stand to do even better.
A return to growth will likely mean the price-to-earnings ratio revises upward. And of course growth means higher earnings, and therefore, even more money to return to shareholders.