Wednesday, July 8, 2009

Melcor Development

This is my one stock (MRD-TSX) that cut it’s dividend in June 2009. The company has cut their dividend by just over 50%. In some ways, this can be thought of a second dividend cut. In 2006, there were two dividends of $.15 each. In 2007, there were two dividends of $.20 each. In 2008, there was a June dividend of $.25 and a December one of .17 for a total dividend of $.42. In 2008, we therefore had a total dividend 5% higher than the total dividend for 2007. But since the dividends in both June and December are usually the same, you could consider the 2nd one in 2008 as a dividend cut.

Because of the dividend situation, I decided to review this stock. I had last looked at this stock when the annual report for 2008 came in. I reviewed this stock in March of this year. In my last review, I liked the stock because of the health dividend increases over the years and because the stock price was lower than the Book Value. The current stock price at $6.40 is still lower than the Book Value of $10.43. The stock price has moved up since March 2009 when it was only $4.50.

With the current dividend, the 5 year growth in dividends goes from 30% per year to 10% per year. 10% dividend growth per year is still considered a health growth in dividend income for a stock. The other thing about the recent dividend decrease, this stock has been removed from the TSX Dividend Aristocrats list at (see indices). This is not good, but it does not mean that Melcor is suddenly a bad stock.

Do not forget that the dividend achiever type lists are done rather mechanically. Stocks are added to these lists when they meet certain criteria; and they are deleted from these lists when they do not. I do not believe you should invest in a company just because it is on a good stock dividend list. You should always investigate a company before you invest. There may be serious problems with a company even though it is on such a list.

Likely wise, I will not simply sell a stock because it has been taken off a list, until I check out the reasons for this move. Melcor Development is into Real Estate in Alberta and this is currently a very difficult market. You only really lose on a stock if it goes bankrupt. I think that decreasing their dividend payment is a wise move by Melcor. Currently, I intend to hold on to my stock. Tomorrow, I will look at what the analysts say on this stock.

There are several other things I want to mention about this company today. The Asset/Liability Ratio is still at a health level of 1.80. However, when we turn to Return on Equity (ROE), it is only 1% for the first quarter of 2009. This is awfully low. A problem I had pointed out in March 2009 was with the Operating Cash Flow. This was negative for 2008; and for the first quarter of 2009, it is also negative. This is not good. It is always better to have a higher Operating Cash Flow than Net Earnings. For this stock, the Operating Cash Flow for both the year ending in 2008 and the quarter ending in March 2009, the Net Earnings is higher than the Operating Cash Flow.

This company is primarily engaged in the acquisition of land for development and sale of residential communities, multi- family sites and commercial sites. It operates mostly in B.C. and Alberta. The company also develops, owns and manages commercial income properties, as well as two golf courses. Its web site is See my spreadsheet at

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website at for a list of the stocks for which I have put up spreadsheets.

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