Aerospace parts manufacturer Transdigm surged +14% on Tuesday after announcing blowout earnings alongside an $30/share special dividend.
On Transdigm's last 30 day trading average, this payout would imply a yield of roughly 6% - an incredible yield for a company growing as healthily as Transdigm.
Driven by steadily growing air travel trends and longer aircraft replacement cycles, Transdigm's core business delivered results that handily exceeded Wall Street expectations, surpassing both revenue and profit estimates by 5% and 15%, respectively.
The company also delivered a new fiscal year financial outlook that surpassed analyst expectations by 2% and 6% on revenue and profits.
These impressive results were driven both by strong performance at the core underlying business as well as better-than-expected progress in integrating Esterline, a components manufacturer that Transdigm acquired earlier this year.
This integration process also partially helped fund the special dividend, as it drove Transdigm's recent $920 million sale of an interconnect solutions business that had been embedded within Esterline.
Over the past few years, Transdigm has gotten in the habit of paying out special dividends like the one announced this quarter every one or two years.
We believe this practice nicely highlights the often-overlooked cash flow characteristics of Transdigm and many other Titan companies.
In other words, while it's easy to mentally bucket Transdigm and other Titan companies as simply "growth businesses," they also tend to be cash flow / income-generating machines that can deliver higher yields than bonds and savings accounts while bearing very attractive long-term risk profiles.