Home Capital Group

I am reviewing this stock (TSX-HCG) today as I was just reading about how it is a good dividend growth stock. It was mentioned because of its good combination of dividend yield and dividend growth over the past 5 years. The current dividend is 1.6%, which I do not find that good. However, the growth in dividend yield over the past 5 and 10 years has been very good at 38% and 37% per year, respectively.

What the article I was reading was referring to was dividend growth potential. That is what you will earn in 5 or 10 years time on your investment if you bought this stock today. If dividends continued to grow at 37% per year, your yield on a current investment would be 7.5% and 36% in 5 and 10 years time.

However, the dividend increases have been much lower over the last few years, so if they grew by say 16% per year instead, you will be earning on your investment today, 3.25% and 6.8% in 5 and 10 years time. The problem is, we can see what has been happening in the past, but we cannot know what will happen in the future. You can only guess at that.

The thing is that the increases in dividends have come from a higher percentage of earnings and cash flow going to dividends. However, the 5 year average payouts were only about 14% for both earnings and cash flow. The top payouts were only 17% and 18% for earnings and cash flow. These are moderate figures.

Most of the growth figures for this stock are very good. For example, the book value growth for the last 5 and 10 years is about 28% per year. This is very good. The worse growth figures are for 5 year total returns. The total returns for the last 5 years would be only about 5 to 6% per year. However, the 10 year total returns are much higher at about 35% per year. The dividends do not add much to the total returns at close to only 1.5% per year. This is because the yield has been low, with the 5 year average being only 1.5%.

This stock lost a fair bit of value in 2008, going as low as $15.65; however, it has recovered nicely and is now at $46.50. This is a high for this stock. It would seem that this stock has over the past done very well for its shareholders over the long term This company is on the dividend lists that I follow of Dividend Achievers and Dividend Aristocrats (see indices).

Home Capital Group Inc. operates through one subsidiary, Home Trust Company, to provide mortgage lending, deposit, retail credit and credit card issuing services. They have subprime mortgages.
Its stock is widely held. Its web site is here Home Capital. See my spreadsheet at 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 for stocks followed and investment notes. Follow me on twitter.