Tuesday, March 9, 2010

Davis & Henderson Income Fund 2

I bought this stock DHF.UN)in March of 2009 after reading a favorable report on it. The stock at that time had a very good dividend and was undervalued. Since then I have made a return of 48% per year. This is because I bought it cheaply.

The first thing I like to look at is Insider Buying and Insider Selling. For this stock there was a bit of insider buying in 2009 at around $14 a share. The other thing of note is that this company will change to a corporation in 2011 with a lower dividend rate. At the current stock price, the yield in 2011 will be just over 7%. This is still a very good yield.

What I want to look at next is the ratios. The 5 year average low for P/E ratio is 8 and the high is 12. The current P/E is just over 8. However, the forward P/E is higher at just over 10. The problem is that all the analyst estimates for both earnings and cash flow are lower for 2011 than they are for 2010. When I look at the Price/Book Value ratio, I get one of 1.57. This is just over 80% of the 10 year average P/BV. The stock price is considered low when the current P/BV is at 80% or less than the long term average.

The dividend yield at 10.8% is higher than the 5 year average of 9.6%. However, when the yield is reduced in 2011, the yield on the current price would be just over 7%. The last thing to look at is the Graham Price. I get a Graham Price of $21.95 for the financial year ending in 2009 and one for 2010 of $22.49. The current stock price at $17 is over 20% lower than these Graham Prices.

When I look at analysts’ recommendations, I find a lot of Holds. There was also one Underperform and one Buy. The main concern is the decline in use of cheques. Also, a lot of analysts seem to feel that this company will not fully recover from the current recessionary problems until at least 2012. Some seem to feel that this company’s stock price is not going to change much over the next year as it is fully priced. There might be some problems with them integrating Resolve Business Outsourcing Income Fund they have purchased. Others feel that this company, even after the dividend trim in 2011 will have a good yield that is sustainable.

I am happy with my purchase of this and I will continue to hold my shares. I live off my dividends, so a good, sustainable yield is what I like. Whether this is a good buy or not probably depends on why you want to buy shares. This stock will probably provide a good, sustainable yield going forward, but probably not much in the way of capital gain for a while.

Davis & Henderson is a leading solutions provider to the financial services marketplace. Founded in 1875, the company today provides innovative programs, technology products and technology based business services to customers who offer chequing accounts, credit card accounts and personal, commercial, and other lending and leasing products. Its web site is www.dhltd.com/. See my spreadsheet at www.spbrunner.com/stocks/dhf.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. Follow me on twitter.

No comments:

Post a Comment