Wednesday, February 9, 2011

The North West Company

I first heard about this company (TSX-NWF) at the 2009 Money Show in Toronto. This is one of the income trust companies (TSX-NWF.UN) that has recently changed into a corporation. It was one that many thought was worth while watching and that it would be one of the income trust companies to do well. And, it has done well. It also has not missed a beat in the change to a corporation with the dividends remaining the same in the change over.

This has been a great little company for people who are invested in it. Dividends have been increasing at the rate of 17% and 13% per year over the past 5 and 10 years respectively. The Total Returns on this stock has been at the rate of 19% and 27% per year over the past 5 and 10 years respectively. Included in the Total Returns is dividends and they made up 8 – 10% per year of the 5 and 10 year Total Returns.

I want to caution you on the future. The last dividend increase in 2010 was only for 6.3%. This is a lot lower than the average increases for this company. Most companies that changed to corporation have trouble with dividend (or distributions) payments. Distribution from income trust companies were from pre-tax money and dividends from corporations is from after tax money.

For this company, the payout ratio from Cash Flow is increasing. It is expected to be around 69% for 2010. The 5 year average payout from cash flow runs lower at 57%. The thing is, dividend increases will be lower over the next while, or they may be non-existent for a while. The company has no plans on lower dividends that I know of.

Basically, this company has great growth rates. The 5 and 10 year growth in revenues per shares has been at 13% and 8% per year, respectively. The growth in cash flow over the past 5 and 10 years has been at the rate of 13% and 9% per year, respectively. The lowest growth rate has been for book value and over the past 5 and 10 years, the growth has been at 4% and 5% per year, respectively. However, this is common for income trust companies.

The debt ratios are also good for this company. The Liquidity Ratio is currently at 1.89 and has a 5 year average of 1.86. The Asset/Liability Ratio is currently at 1.92 and has a 5 year average of 2.06. For these ratios, anything over 1.50 is good. The Leverage Ratio is also good at 1.99, a rather average ratio.

The last thing is the Return on Equity. The ROE for the financial year of 2009 was 28%. The ROE for the first 9 months of 2010 is 26%. The 5 year average is 24%. These are all very good ratios.

Tomorrow and I will talk about what my spreadsheet says about the current price and what the Analysts have to say about this stock.

The North West Company is a leading retailer of food and everyday products and services to rural communities and urban neighborhoods in Canada, Alaska, the South Pacific and the Caribbean. North West operates 225 stores under the trading names Northern, NorthMart, Giant Tiger, AC Value Center, and Cost-U-Less. Its web site is here North West. See my spreadsheet at nwf.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.

1 comment:

  1. Good post. I haven't thought too much about small(er)-cap food retailers but this post got my attention. Love the yield on this guy.

    You probably already know, they converted to a corporation, under NWF.