Monday, January 3, 2011

Shoppers Drug Mart

This is the company (TSX-SC) I have bought for my Tax Free Savings Account. The stock has not done very well since I have bought it. To date, my total return, including dividends, is -9.7% per year. Just under 2% of my return is in dividends. The only reason my TFSA has done well is the small cap dividend paying companies I have bought for filler. (That is, I bought them with the small amount of money left over after my main purchase of Shoppers.) The first company I used was Matrikon, which was subsequently bought out. Currently, I have some Pareto (TSX_PTO) as a filler in this account.

People who invested in the company for a longer period of time than I have would have more of their total return in dividends because the average increase in dividends was 20% before 2009. Dividend increases have been a round 5% since 2009, with dividends actually paid in 2010 lower because the dividend increase was instituted after the first dividend payment. At the moment, I am making a 2% dividend yield on my investment. This stock currently has a 2.3% dividend yield, which is better than usual for this company.

The dividend potential of this stock is probably much lower than the 5 year average growth of 17%. I am usually conservative, but no one thinks that this stock is going to do all that well over the next 2 years. Using a dividend growth of 5%, the dividend potential on this stock is around 2.9% in 5 years time and around 3.7% in 10 years time. The dividend potential is basically, what sort of dividend yield you could be making in 5 or 10 years time on an investment today in this stock.

Except for cash flow, all the 10 year growth figures are better than the 5 year ones. The 5 and 10 years growth in revenues is 8% and 13% per year respectively. The growth in cash flow is the reverse, with the 5 and 10 year growth being at 12% and 8% per year, respectively. The only growth rates that suck is that for total return over the past 5 years and if you held this stock for 5 years at the minimum, your total return would be around 0%, including dividends. That means that you would have broken even.

The reason for the low total returns is that this company was considered a growth stock, and as such, had quite high Price/Earnings Ratios prior to 2009. However, since 2009, the P/E Ratios have come down substantially. The average low P/E Ratios before 2009 was around 20, but currently they are around 16. The current P/E Ratio is even lower at around 14. A low P/E ratio around 16 is a moderate P/E ratio, not low one.

For this stock, the Liquidity Ratio of 1.86 is very good and the 5 year average of 1.24 is ok. The Asset/Liability ratio has always been quite high. The current A/L Ratio is 2.55 and the 5 year average is 2.37. Any ratio over 1.50 is good. The Asset/Book Value or Leverage Ratio is good at a slight below average one of 1.82.

I have updated my spreadsheet with the figures I can for the financial year ending around the end of December 2010. These are in black. The financial figures that cover the 12 month period to 9 October 2010 are in purple. Tomorrow, I will talk about what the analysts say about this stock. I will also talk about what my spreadsheet says about the current stock price.

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. This is a widely held company. Its web site is here Shoppers . See my spreadsheet at 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 for stocks followed and investment notes. Follow me on twitter.

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