A Once-in-a-Decade Opportunity: 1 Magnificent Dividend Stock Down 30% to Buy Right Now

The Toro Company (NYSE: TTC) states that its purpose is to "help our customers enrich the beauty, productivity, and sustainability of the land." Its sales range from mowers and turf maintenance equipment to irrigation solutions, underground construction equipment, and snow and ice management products.

Powered by No. 1 or No. 2 market-share positions in most of its product categories, Toro has delivered total returns of 4,930% since 2000 -- rocketing past the S&P 500's returns of 560% over the same time.

Over the last two years, though, Toro's sales dipped 1% while its net income slid 10%, prompting the stock to plummet 30% from its all-time highs. This leaves the shares trading at their most reasonable valuation in nearly a decade and the dividend yield at a 10-year high of 1.7%.

That makes today the perfect time to consider this magnificent dividend growth stock.

What's going on with Toro lately?

Toro likes to use the quote, "Grass grows, snow falls, and infrastructure ages" to highlight the appeal of its essential products to prospective investors. Backing up this motto is the company's undeniably steady operations, which result in a 5-year beta of 0.7 for Toro's stock.

Measuring a company's volatility compared to the broader market, Toro's below-one beta shows that it is less turbulent than most stocks. This stability comes from the company's diverse non-discretionary products that span a wide array of end markets.

Here is a breakdown of those end markets and why each makes Toro a resilient stock to own over the next decade.

1. Landscape and grounds (37% of sales)

Toro's largest end market remains under pressure in 2024 as contractors and homeowners rein in purchases of big-ticket items amid higher interest rates and consumer spending uncertainty. This segment primarily generates sales via Toro's dealer network and is inching closer to a rebound, with the company about 80% of the way back to "normal" field inventory levels.

Cyclical inventory fluctuations like this will always be a factor in Toro's stock. Still, with most of its products having a typical replacement cycle of three to five years, everything eventually balances out over the longer haul. Trusted to care for some of the world's most valuable fields, such as Manchester United's pitch at Old Trafford, Toro's equipment remains best in class.

2. Underground and specialty construction (23% of sales)

Buoying this end market are numerous megatrends that should lead to increased demand for underground equipment (think of those Ditch Witch vacuum excavators) in the decades to come. Driven by forces like the broadband and data center buildout, energy grid updates, transportation infrastructure rebuilds, and water quality and utility upgrades, underground equipment quickly became Toro's growth segment.

As of the company's most recent quarter, the book-to-bill ratio for these segments was over 1, indicating that demand is outpacing how fast Toro can manufacture its products, creating an elevated backlog.

Image source: Getty Images.

3. Golf (17% of sales)

Toro holds a dominant 50% market share in the golf equipment and irrigation niche and is the only company to offer both products. This unit tends to be relatively steady, with Toro typically leasing out its golf equipment for three years at a time, creating a consistent flow of sales.

The company serves many of the most famous golf courses in the world, such as St. Andrews Links in Scotland, and it is continually innovating to maintain its market leadership.

4. Residential (19% of sales)

Last but not least, Toro's residential sales have seen accelerating growth following a partnership with home improvement juggernaut Lowe's Companies. Much like the contractor side of Toro's business, this unit is more sensitive to broader economic conditions but should become more resilient thanks to Lowe's mass appeal.

Top-notch profitability and a once-in-a-decade valuation

Toro is home to substantial net profit and free-cash-flow margins that averaged 9% over the last decade. These margins leave ample funding for mergers and acquisitions, stock buybacks, and dividend payment increases. Following the stock's 30% pullback, its 1.7% dividend yield now sits near 10-year high.

TTC Dividend Yield data by YCharts.

With the company maintaining a payout ratio of only 37%, this elevated dividend yield looks sustainable -- and it has grown at a 16% annual rate since 2014.

Adding further justification to the idea that Toro is trading at a once-in-a-decade valuation, its price-to-sales (P/S) ratio of 1.9 is roughly 20% below its 10-year average.

TTC PS Ratio data by YCharts.

This combination of cheap valuation and Toro's highest dividend yield in 10 years makes the company an excellent bedrock holding to buy at a once-in-a-decade price.

With management focused on creating $100 million in annual cost savings by 2027 -- compared to the $399 million it earned in net income this year -- Toro seems like a top-tier rebound candidate for investors willing to wait long enough.

Don’t miss this second chance at a potentially lucrative opportunity

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See 3 “Double Down” stocks »

*Stock Advisor returns as of November 18, 2024

Josh Kohn-Lindquist has positions in Lowe's Companies and Toro. The Motley Fool recommends Lowe's Companies and Toro. The Motley Fool has a disclosure policy.