Monday, March 8, 2010

Davis & Henderson Income Fund

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. This company is on the dividend lists that I follow of Dividend Achievers and Dividend Aristocrats (see indices). Although this might change as they will cut their dividend when they convert to a corporation in 2011.

When looking at growth values, they are not great. This company had a difficult year in 2008, but it is recovering by having a solid financial performance in 2009. The best growth is for dividends, where they have grown by some 5.6% per year for the last 5 years. However, this will change in 2011 when they expect to lower dividends to $1.20. Dividend will be lower than when this company started out. At that time, my income yield on this stock will be 9.3% on my original investment. So, I will continue to be rewarded by my investment in this company.

Do not forget that distributions from 2011 will be taxed as dividends, not other income, so your net income from this stock will not be as low as it first appears. However, I think what is the most important in connection with this stock is their return to growth in Revenue, Earnings and Book Value. They seem to be having more difficulty in growing their cash flow, but a good start is the increase in revenue. The other thing to note is the increase in Trust Units in 2006 and 2009. Since the increase in Trust Units was to help finance the purchase of other businesses, it was a valid reason for issuing shares.

If you had held this stock since it was first issued in 2001, you could have potentially made a return of some 18% per year. This is excellent. The return for the last 5 years is only some 2.5%, but we have just come out of a recession and over the long term, the total return on this stock should be good.

The other thing I should talk about is the Asset/Liability Ratios. The liquidity ratio using current assets and current liability is low at 0.88. However, there is more than one way of looking at liquidity and, this company has enough cash flow to cover their current liabilities. The Asset/Liability ratio is very good at 2.57. The last thing to talk about is the Return on Equity. This is good for both the 5 year average and the ROE at the end of 2009. The 5 year average ROE is 17% and the ROE at the end of 2009 is 16.5%.

I found another blogger who wrote about this stock at Dividend Girl. On this site, a French Canadian New Brunswicker is setting out to get an income from a stream of dividends from various companies, include Davis and Henderson. Having streams of income from a variety of companies in different industries is a great way to provide for future financial stability.

Although I did not make a sizable purchase of this stock, I am happy with what I have and will continue to hold the shares I have.

Davis & Henderson provides programs to customers who offer chequing account and lending services within Canada. It manages the cheque supply programs for virtually all of the financial institutions in Canada, including the Big Six banks. 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. Also, look at other investing notes on my website at Follow me on twitter.

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