Tuesday, August 16, 2016

Riding the Rails for income GATX

EMD GP38-2 locomotive GMTX 2146, owned by GATX...
EMD GP38-2 locomotive GMTX 2146, owned by GATX Rail Locomotive Group, a locomotive leasing company. Photo taken in the Union Pacific Railroad depot at Anaheim, California, USA. (Photo credit: Wikipedia)
One of the consequences of going on vacation is being behind on investing available cash. 

Every income investor is struggling to find a place to invest cash for income.  Since this is my specialty, I look everyday for an opportunity. 

One place you will not find opportunity is the bond market so I am looking for yet another dividend stock. 

You need to spend a lot of time researching a stock so I am behind on my research.   In spite of being behind, I found a stock I like and will add to my portfolio.

Why add a new holding?

Quite often, I just add to already existing positions but most of the dividend stocks I own have appreciated to the point where new money doesn't generate much income.  My minimal yield requirement is 2.75%.  With 2.75% yield, I really also need covered call income to generate the 4-6 percent return that I am used to.   I could not even find a holding in my portfolio with this minimal yield and covered call income to make up the difference.  Hence I am adding a new position.

GATX Corporation symbol GATX

GATX has been in business for 117 years.  They have weathered many storms.  Dividend yield is a very healthy 3.68%.  Dividend growth over the past five years has been over 7% per year.  Revenue growth over the past three years exceeds 5%. 

This company has a debt to equity ratio of 3.35 which may seem too high.  Clearly 3.35 is well above my requirement of 1.  I also add the option of accepting a stock with a higher debt to equity ratio (D/E ratio) if that ratio is within industry standards.  Caterpillar  (CAT) is one of those stocks and so is GATX.  Industry standard is 3.36.  Click on this link to review the strength of GATX's balance sheet.  http://ir.gatx.com/phoenix.zhtml?c=70051&p=debtOverview

GATX is globally diversified and well managed.  It seems to be inexpensive with P/E ratio (price earnings ratio) of 8.01. 

GATX Fundamentals

The fundamentals I use to evaluate a new holding are presented below. 

Consider GATX for the income producing portion of your portfolio.  Take care of the fundamentals and the stock will take care of you.