When I vet an income stock, I focus on two primary considerations: individual merit and portfolio appeal.dividend-grower

The first is obvious: Is it a dividend-paying company with solid fundamentals and decent earnings-growth prospects? If the answer is “yes,” I continue my analysis.

The second is less obvious. To be sure, I want a financially sound company with a future, but I don’t want a portfolio of financially sound companies with a future all from the same industry. I want portfolio diversification.

[ad#Google Adsense 336×280-IA]I’m particularly keen to consider industries that are under-represented in my portfolio.

I imagine most investors’ portfolios lack exposure to Ritchie Bros. Auctioneers’ (NYSE: RBA) niche market.

As the name implies – accurately – Ritchie’s niche is auctions.

But Ritchie Bros. is no Sotheby’s (NYSE: BID).

Instead of trading in Monets and Picassos, Ritchie Bros. trades in Caterpillars and Komatsus.

In fact, the Vancouver-based company is the world’s largest auctioneer of used industrial, mining, oil and gas, and construction equipment. Its business is to bring buyers and sellers together and take a cut of the sales proceeds.

In other words, Ritchie Bros. facilitates purchases as opposed to making purchases, so margins stay expansive. Gross margins continually exceed 85%, while operating margins exceed 31%.

Ritchie Bros. serves many clients whose businesses have grown briskly over the past 10 years. More recently, though, many of these same clients have seen growth grind to a halt. Still, boom or bust, Ritchie Bros. continues to grow. Annual revenue of $357 million in 2010 has climbed to $519 million over the trailing 12-month period. EPS growth has kept pace, climbing to $1.11 from $0.62.

Ritchie Bros. has obvious merit as an individual investment. Portfolio appeal is less obvious, but still worthwhile. For example, 2008 and 2009 were recession years. Most everything was down, yet its business continued to prosper. Both revenue and earnings maintained an upward trajectory.

The logic behind Ritchie’s recession-era success is easy enough to understand: As global economies faltered, many businesses were stuck with idle high-cost equipment. These businesses needed to sell the equipment to raise cash in a hurry. (If you remember, there was a liquidity crisis.) These companies desperately needed Ritchie Bros.’s services.

Growth opportunities abound, regardless of the prevailing economic climate. At an estimated $360 billion, the global used equipment market is huge. Ritchie Bros. is a global leader in used equipment sales, with $4.2 billion of equipment sold in 2014. However, this represents only 1.2% of a highly fragmented global market.

Online auctions offer a ready avenue to capture more market share. Two years ago, Ritchie Bros. launched EquipmentOne, a website to provide customers with an online equipment marketplace. Initial results are encouraging. Gross transaction revenue posted at $118.8 million over the trailing 12 months, up 23% from the year-ago period.

Persistent revenue and earnings growth support persistent dividend growth. Ritchie Bros. isn’t a high-yield stock – its shares yield 2.4% – but it’s a consistent dividend grower. The most recent increase occurred in September, which saw the payout lifted by 14% over the previous dividend.

Predictable growth, a unique business niche, solid financial fundamentals, annual dividend growth and portfolio diversification benefits: these are all solid reasons for considering Ritchie Bros. Auctioneers for your portfolio.

— Stephen Mauzy

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Source: Wyatt Investment Research