Shoppers Drug Mart

As I said yesterday, I am today reviewing Shoppers Drug Mart stock (TSX-SC). I first bought this stock last January as my pick for my new TFSA. On this stock, I have made a return of just over 4%. This is not great, but we are in a tough market, especially for consumer stock. This is a Consumer Staple stock and the main reason I buy Consumer Staple stock is for diversification. However, note that over the past year, this stock has been fairly flat and the TSX has gone up since its low in March.

I note that other analysts recommend that for conservative portfolios, we should diversify into resource stock rather than consumer stock. The dividends on consumer stock are usually low, at 1% and sometime less. However, they are often stock with increasing dividends. Resource stocks also often have dividends. For resource stock, the dividend is either low, and increasing like consumer stock, or they fluctuates depending on the price of stock’s resource price.

When I look at the growth figures, this stock has done well in revenues, earnings, dividends, stock price and book value. The only one where growth has not been great is in cash flow. In cash flow growth, this stock has been mediocre at best, with growth for the last 5 and 10 years at just under and just over 5%.

I should also note that even though this stock has a good history of increasing dividends, they did not increase their dividends in 2009. Their lack of increasing cash flow could hamper their ability to raise dividends in the future. When you look at what the analyst say, many believe that the cash flow on this stock will pick up significantly for 2010 and 2011. With my spreadsheet numbers, I am being very conservative in cash flow figures.

When I look at the Liquidity Ratio, I find the current one high at 1.61. However, this ratio is usually just over 1.00, which is low. The Asset/Liability Ratio is currently high at 2.33. This ratio is usually high and over 2.00. When you look at both this ratios, what I like to see is both these ratios at 1.50 or higher.

The last thing to talk about today is the Return on Equity. The 5 year average is over 15%. The most recent ROE is 14.9%, which is slightly below the 5 year average, but still good. I had bought some more of this for my TFSA for this year. However, this is not a stock you can put away and forget about. I will be keeping an eye on it.

Shoppers Drug Mart Corp. is a licensor of Shoppers Drug Mart in Canada and Pharmaprix in Quebec. The company owns and operates Shoppers Home Health Care stores. It also owns MediSystem Technologies Inc. and the new Murale Stores. Its web site is www.shoppersdrugmart.com. See my spreadsheet at www.spbrunner.com/stocks/sc.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. Also, look at other investing notes on my website at www.spbrunner.com/investing.html.