Proper now, shares in Polaris (NYSE:PII) include a 3.2% dividend yield. UK traders may not have come throughout the corporate earlier than, however I believe it may very well be probably the greatest alternatives in the mean time. 

The share price is at a 52-week low in the mean time, however I don’t assume there’s something unsuitable with the underlying enterprise. I believe there’s an excellent case to be made for getting the inventory at at present’s costs.

What does Polaris do?

Since Polaris isn’t a inventory UK traders usually pay a lot consideration to, it’s value saying a bit about what it does. The agency designs and manufactures leisure autos, largely for powersports.

The corporate has quite a lot of key strengths that I believe make it value taking a look at from an funding perspective. The primary is its standing as a world chief within the powersports trade.

This enables Polaris to construct good relationships with sellers, giving it a bonus over rivals. Its robust manufacturers additionally assist generate buyer loyalty in an trade the place switching prices are low.

The enterprise can be rising impressively, averaging 7% annual income progress during the last decade. And the dividend has elevated every year for the final 29 years. 

Why is it so low-cost?

At a price-to-earnings (P/E) ratio of 12 based mostly on final yr’s earnings, Polaris shares look low-cost in the mean time. And there’s a motive for that – the corporate will get round 80% of its revenues from the US. 

A number of companies making merchandise individuals need however don’t want have been discovering the US troublesome currently. And it is because GDP progress has been comparatively weak in the course of the first three months of 2024.

For Polaris, this has been exhibiting up in earnings. The corporate reported lower-than-expected revenues and earnings per share of $0.23 between January and March, in comparison with $2.05 a yr in the past. 

There’s no query that investing in a enterprise that sells discretionary merchandise in a market that’s beneath macroeconomic stress is dangerous. However I believe the decline seems to be like a terrific alternative.

How critical are the dangers?

There are a couple of causes I believe the Polaris share price seems to be vastly engaging in the mean time. The primary is the dividend.

The corporate at present pays out $2.64 per share to traders. And with final yr’s earnings coming in at $8.80, issues need to get a lot worse for a very long time earlier than there’s any hazard of a dividend lower.

One other is the agency’s stability sheet. The hazard with a cyclical firm like Polaris is that it wants to have the ability to meet its monetary obligations even when gross sales are sluggish. 

I don’t assume there’s any hazard on that entrance both, although. Curiosity funds account for round 25% of the agency’s working revenue, leaving loads of headroom on this space.

A inventory to think about shopping for

Warren Buffett advises traders to be grasping when others are fearful. However that may be a very unhealthy concept – typically traders are fearful for a motive.

With Polaris, although, I don’t assume that is the case. I believe it is a terrific alternative to purchase shares in a top quality enterprise at an unusually good price.