3 Reasons To Buy Amerco

Originally published 12/20/2011 on http://www.investopedia.com/ by Will Ashworth.  Read the original article at http://www.investopedia.com/stock-analysis/2011/3-Reasons-To-Buy-Amerco-UHAL-HTZ-R-DTG-CAR1219.aspx.

Amerco (Nasdaq:UHAL), parent company of U-Haul with those orange and white trailers synonymous with do-it-yourself moving, announced in December 2011 that it was paying a $1 per share special dividend to shareholders of record on December 23, 2011. Time is running out for those interested in receiving an early Christmas gift. For those thinking beyond January, here are three reasons to consider investing in Amerco's stock. (For related reading, see Why Dividends Matter.) 

Common Shares Amerco's $1 special dividend amounts to a yield of 1.2% based on its December 14, 2011 closing price of $81.22. That doesn't seem like much but considering a five-year U.S. treasury bond yields less than that, you're already ahead of the game by January 3. Although the company doesn't pay a regular dividend, it's possible that management will make special dividends a regular occurrence and that would be just fine. I wish all companies used special dividends exclusively to distribute excess cash to shareholders. Amerco plans to spend less on construction in the immediate future than it has in recent years, and this should generate greater free cash flow moving forward.

In the first six months of 2011, business was firing on all cylinders. The company's three segments: moving and storage, life insurance, and property and casualty insurance all saw positive year-over-year increases in revenues and operating earnings. Moving and storage, which contributes 90% of overall revenue and 99% of operating income, saw revenues increase about 8.7% to just above $1.2 billion, and operating income increased about 16.3% to $329 million. Earnings per share for the first two quarters were $8.75, about 17% higher than in 2010. The $511.6 million in revenue from self-moving equipment rentals in the second quarter was the highest quarterly amount in the company's history.

Amerco and Peers

Dedicated Employees
Ever since U-Haul got its start in 1945, the Shoen family's been in control despite family skirmishes and a 2003 bankruptcy. Today, the Shoen clan owns 55.6% of the common stock and another 7.8% is owned by the employee stock ownership plan. A quick analysis of the summary compensation table in the annual proxy statement indicates the five named executive officers (three are Shoen's) aren't pigs at a trough; their average total compensation in fiscal 2011 was around $567,000 with just about $6,200 in stock awards. Its revenues were $2.2 billion in fiscal 2011 with net profits of $184 million, yet its named executive officers earned far less than Dollar Thrifty, whose revenues in 2010 were $1.5 billion with net earnings of $131 million. Dollar's top five received an average of approximately $1.8 million in total compensation with stock awards representing about 50% of that number. Three times the pay for equal or inferior performance. Amerco shareholders can rest assured they're getting value for their money. (For more information, check out Evaluating Executive Compensation.) 

Management Creativity
During the credit crunch of 2008, Amerco found itself with a funding problem and as a result it was only able to secure 30% of its normal borrowing needs. This led Jim Shoen to come up with a creative solution: Amerco would create a vehicle for investors to lend money directly to the company for equipment purchases. Using a concept based loosely on peer-to-peer lending, the U-Haul Investors Club has raised around $11.3 million since February of this year. A current investment opportunity available is a five-foot by eight-foot van trailer paying 7% annual interest over a 12-year term. The deal includes a quarterly principal repayment of 2.08%, which reduces the term risk inherent in such a lengthy loan. This particular trailer is part of a bigger $1.2 million offering registered with the SEC. 

Clearly this isn't for everyone, but it is high time individuals gained access to these kinds of investments. The amount of capital raised to date is less than 1% of Amerco's total debt. Although it's a drop in the bucket, Jim Shoen sees this growing over the next 10-20 years and believes it's worth getting out front and leading the charge. That's what you call thinking outside the box. (To learn more, read Lending Clubs: Better Than Banks?)

The Bottom Line
Amerco's valuation is cheaper than it has ever been. Yet its business is stronger than it has ever been. Only twice in its history has its stock traded above $100 and both times it was only for an instant. I see it happening a third time in 2012 and this time it may stay there for more than a few days.

At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.