Top picks 2012: Student Transportation
With monthly dividends and an attractive yield, this school bus operator is going for growth.
By Roger Conrad, Canadian Edge
You won't have income for long without growth. Student Transportation (STB) has plenty of both, with monthly dividends that produce a yield of more than 8.5% and contracts in place to grow revenue 18% this fiscal year.
The owner and operator of school bus systems throughout North America last month announced the acquisition of Dairyland Bus, adding 700 vehicles, $36 million in additional revenue and five new locations to its Midwest operations.
This is the kind of deal Student Transportation has been able to make work in recent years. It's expected to add an additional 6% in annualized revenue once it closes, pushing total growth to 18% for fiscal year 2012. It's also expected to be immediately accretive to profits. The company used proceeds from its newly inked credit deal to finance the acquisition, something it's likely to repeat at least one more time this year.
Student Transportation was also able last month to roll over $35 million in senior notes maturing Dec. 15, 2011 for another five years, while cutting the rate from 5.94% to just 4.24%. That will save an estimated $593,000 in annual interest charges.
Student Transportation's targeted payout ratio is 80% to 85%, which is about where it stands now. But consistent and highly transparent revenue growth should push it lower and open up the potential for dividend growth by 2013 if not sooner.
And the longer the U.S. economy remains constrained, the greater the company's opportunity for expansion will be, as school districts look to cut costs by outsourcing bus service, or by selling their operations outright.
Student Transportation is a "buy"; the stock is now listed on NASDAQ, making it easy for U.S. investors to do so.
Steven Halpern's TheStockAdvisors.com offers a free daily review of the favorite stock ideas of the nation's top financial newsletter advisors.
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