Tuesday, February 2, 2010

Superior Plus Corp 2

I am today continuing my review Superior Plus Corp (TSX-SPB). I have not previously reviewed this stock. I have had no investments in this stock. Superior Plus was an Income Trust that has recently changed to a corporation. Since reducing its dividend with this change, it has increased it again by just over 3%.

What I want to make clear is my statements yesterday on dividends. Yes, they do pay good dividends. And yes, the 5 year and 10 year average dividend yield is just over 10%. But the point about dividend growth is worth talking about more. Although the average dividend yield over the past 5 and 10 years was just over 10%, ironically the dividend yield on original investments after 5 years was often lower than 10% and the dividend yield on original investment after 10 years, was just over 10%, but not by much.

For example, based on the average high and low (H/L) stock price of 1996 of $13.45, in 2006 you would be making a return on this $13.45 of $1.82 in dividends. This gives a dividend yield of just 13.5% after holding the stock for 10 years. Now go forward. Based on the average high and low stock price of $14.55 in 1999, 10 years later in 2009 you will be getting a dividend of 1.62. This equals a dividend yield on your $14.55 stock price of just over 11%. In recent years, this stock has not given a great return on a long term investment.

Of course, past results do not predict future results. This stock has a lot of problems in 2005 and had to restructure. Other stock have gotten into problems and after restructuring, produced good results. However, this section of my review to talk about what analysts feel about this stock going forward, and whether or not the current price is good or not.

When I look at the P/E ratio, I find that the 5 year average low is 12.6 and the 5 year average high is 15.2. The current P/E I get is 9.8. This is based on expected earnings for 2009. Any P/E ratio of 10 or below is low. The site which base their P/E ratios on last 12 month earnings get a really high P/E of 40. Usually at this close to the reporting season for companies that have an annual year end at December 31, 2009, the estimates get pretty accurate. The estimates also do not vary much.

When I look at the Price/Book Value ratio, I find that the current one of 2.31 is higher than the 10 year average of 2.00. The problem here is that the Book Value has been declining lately. A declining Book Value is not a good sign. However, the recent decline has to do with selling more shares to cover a purchase. In this case, that may mean that the future values will be better.

The next thing to look at is the dividend yield. The current yield is 11.9% and this is higher than the 5 year average of 10.9%. It is not higher by much, but it is higher. The thing to point in the dividend yield is that this company is currently paying out some 90% of its Cash Flow. This may or may not be a problem. Some recent studies have shown that companies paying out a high percentage of it cash flow can do better than companies that do not. In the main, what this proves is that a high payout ratio may not be a problem.

The next thing to talk about is the Graham Price. The current Graham Price is $13.63. The current stock price is very close to this, so this show the stock price is indeed a good price. The last thing to talk about is what the analysts are saying. On this stock, there are Buy and Hold recommendations. However, there is far more Hold recommendations and the current consensus is a Hold. (See my site for information on analyst ratings.)

Why there are so many Hold recommendations is that the 12 month expected stock price for the analysts is at or below the current stock price. The other thing is that the company has recently given guidance on cash flows for 2009 and 2010 and they were below what the analysts had been expecting. Also, it is not expected that the dividends declared will be increased in 2010. This stock has already climbed quite nicely from the March 2009 lows. It is up some 50% since March 2009. So, it would seem from all this that the analysts feel that now is not the time to buy this stock.

This company distributes propane, related products and services in Canada; produces sodium chlorate in Canada and U.S.; distributes specialty construction products to the walls and ceilings industry in Canada and U.S.; and provides natural gas supply services to commercial, industrial and residential markets in Ontario and Quebec. Its web site is www.superiorplus.com. See my spreadsheet at www.spbrunner.com/stocks/spb.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.

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