Tuesday, September 22, 2009

Home Capital Group

I am reviewing this stock (TSX-HCG) as it is a stock I follow. I have not yet written up this company. I have updated my spreadsheet with the 2008 annual report. This company is in the financial services industry and it is a good dividend paying stock.

If you look at the growth figures for this company, they are all very good. So far, it has been a fast growing company. The dividends have been growing rapidly. The dividend growth figures for the last 5 and 10 years are 53% per year and 41% per year. They have also not paid out a high portion of their cash flow. The 5 year average is 11%. Although the percentage of cash flow being paid out has increased over the years starting around 5% and the last is around 15%.

The only growth figure that is not great is the total return, which includes stock price and dividends to the end of 2008. The 5 year growth was only 5% per year. Considering this stock got hit with the bear market and the stock price declined sharply (over 50%), this is not surprising. However, the stock price has now risen to almost that of 2007. So, if you had had this stock for the last 5 years, you would now be enjoying great 5 year returns.

The Asset/Liability ratio is just 1.08. However, this is a financial stock and this ratio is not bad for a financial stock. The Return on Equity (ROE) for this company has always been great, especially the last 5 or 6 years. The 5 year average at the end of 2008 was 25.8%.

One negative I see on this stock is that the dividend yield has been quite low. The 5 year average is under 1%. The current yield is a bit better at 1.5%. Still this is low. However, the rapid increases in dividends might make up for this low yield. The other thing I have noticed is that the Accrual Ratio has been quite high and usually way over 5%. This might call into question the quality of the earnings shown in the financial statements. This is just a cautionary note; mostly this company seems to be a fast growing financial services company with a rapidly increasing dividend.

I do not own this stock. I have too much already invested in the financial section of the TSX. However, I intend to continue to following this stock. This is a relatively small company and I notice the Globe and Mail gives it a 4 star rating. However, this company is a fairly risky investment. Please remember that past returns do not predict future returns.

Home Capital Group Inc. operates through one subsidiary, Home Trust Company, to provide mortgage lending, deposit, retail credit and credit card issuing services. Its web site is www.homecapital.com. See my spreadsheet at www.spbrunner.com/stocks/hcg.htm.

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 www.spbrunner.com/stocks.html for a list of the stocks for which I have put up spreadsheets.

No comments:

Post a Comment