Magna International Inc

There is an interesting article about three common financial blind spots . It is aimed at US investors, but the points do apply here as well.

Magna International Inc. (TSX-MG) is the stock I want to talk about today. I do not own this stock. However, I did own it briefly between 2002 and 2006 and made a total return of 4.65% per year. I have followed this stock for a number of years, although I have only blogged about this stock once before.

I do like Frank Stronach however; however, I do not think there is much money to be made in the automobile industry. In any event, Frank was bought out of this company. See article. It will be interesting to see how this company fairs without Frank. This is also considered to be an Industrial stock.

As far as dividends go Magna pays them in US$. This means that they will fluctuate with the changes in US/CDN currency. However, Magna also varies its dividends. For example, it temporarily stopped dividends in 2009 because they had a problem making money. Dividends over the past 5 and 10 years have been declining.

In CDN$ terms the 5 and 10 year decline in dividends are at 14% and 8% per year, respectively. (Not great if you are dividend investor.) The Dividend Payout Ratios are quite low (which is expected for Industrial stocks) at a 5 year median of 19.6% and 8.4% for earnings and cash flow, respectively.

If you had bought this stock 5 and 10 years ago, you would have made 4.9% and 6.5% total returns over that period in CDN$. The portion of the total returns attributable to dividends would be 1.2%% and 2.1%, respectively. The big reason that current dividends are lower is that dividend yield has been lower over the past 5 year than in prior years. This is true for both Canadian and US investors.

In US$ terms, total return over the past 5 and 10 years would be at 8.8% and 11.6%. The American, or US$ currency investors did considerably better than Canadian or CDN$ currency investors. The other thing to note is that there was a big run up in Magna’s stock price at the end of 2010 and beginning of 2011.

However, since then the stock price has come down just over 40%. The stock has something like a 110% run up before this decline. The run up seems to be because of stock split and dividends being increased. The decline seems to be because of a profit decline this year in the second quarter (reported in August 2011).

When you look at growth, this is better in US$ than in CDN$. Also, growth is better in absolute values than in values per shares. For example, growth in Book Value in US$ is 92% over past 10 years, but growth in Book Value per share in US$ is only up 24% over the past 10 years. In CDN$ terms, growth in Book Value is up 26% over the past 10 years, but Book Value per share is down 18%. As you may guess, there have been increases in the number of shares that do not benefit individual shares.

The bottom line for growth figures is that there is no growth in per share values in Revenue, Cash Flow, Earnings or Book Value. All have declined at the rate of 1% to 4% per year. However, there was only one year (2009) with negative earnings and no years with a negative cash flow.

As far as debt ratios go, the ones for this company are good. (The ratios are the same whether you are talking in US$ or CDN$.) The current Liquidity Ratio is 1.55 and it has a bit lower 5 year median ratio of 1.48. The current Asset/Liability Ratio is very good at 2.36, with an also very good 5 year median ratio of 2.29. The current Leverage and Debt/Equity Ratios are also good at 1.74 and 0.74.

The return on equity is very good at 24% for the end of 2010. However, the 5 year median ROE is low at just 7.4%. This is because the ROE has not been very good since 2004. The ROE for the 12 months ending in June 2010 is also good at 21%.

Tomorrow, I will look and see what the analysts say about this stock. Frank Stronach has, basically, sold all his shares in this company.

Magna International is the most diversified global automotive supplier. They design, develop and manufacture technologically advanced automotive systems, assemblies, modules and components, and engineer and assemble complete vehicles, primarily for sale to original equipment manufacturers ("OEMs") of cars and light trucks. Their capabilities include the design, engineering, testing and manufacture of automotive interior systems; seating systems; closure systems; body and chassis systems; vision systems; electronic systems; exterior systems; powertrain systems; roof systems; hybrid and electric vehicles/systems; as well as complete vehicle engineering and assembly. Its web site is here Magna. See my spreadsheet at mg.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.