Badger Daylighting Ltd

I so not own this stock (TSX-BAD).  This company came up on an article called Some Small Cap dividend payers to review from G&M. This stock also came out on a list entitled an alluring mix of stability and profits at G&M.

The first article looked at what the pros who manage small-cap funds are buying.  Badger was one of 10 stocks mentioned and it looked like an interesting stock.  It is a dividend paying small cap.  The second article looked at what stocks might appeal to a conservative investor looking for income.

So the above is why I decided to review this company.  Now, on to what I found.

The first thing that caught my eye was dividends.  Although the current dividend yield at 4% is good, the 5 year median dividend yield at 6.6% is higher.  This is because dividends were reduced by 19% in 2011. Over the past 5 year dividends are down by 3.5% per year.  This company started to pay dividends in 2004 and since that time dividends are up by 9.7% per year.

This stock used to be an Income Trust under (TSX-BAD.UN).  Most companies changing from Income Trust to corporations lowered dividends.  This is what this company did.  They have not announced when they might increase their dividends again, but they probably will.  The 5 year median Dividend Payout Ratios are 72% for earnings and 42% for cash flow.  The DPR for 2011 were lower at 44% and 34%.  It would seem that they will be about the same for 2012. 

If you had invested in this company over the past 5 and 10 years, you would have made money.  The total return over the past 5 and 10 years would be around 15% and 35% per year, respectively.  The dividend portion would have been around 7% and 11% per year, respectively.  The dividends would have represented something like 48% and 31% of the return.  Capital gain would have been at 8% and 24% per year, respectively.

There is good revenue, earnings, cash flow and book value growth for this company.  For example, the earnings growth is running at 9.3% and 29.5% per year over the past 5 and 10 years.  Cash Flow is running at 9.3% and 16.6% per year over the past 5 and 10 years.

The debt ratios are good.  The current Liquidity Ratio is 2.76 and the current Debt Ratio is 1.95.  These both deal with assets and liabilities and what you want is ratios at 1.50 (or above).  The current Leverage and Debt/Equity Ratios are also good.  They are at 2.06 and 1.06 respectively.  (Here the lower the ratio, the better the ratios.)  However, these last two ratios are rising as the 5 year median Ratios were 1.81 and 0.81.  They are not currently high, but they are going in the wrong direction.

Return on Equity for 2011 is 28.9% and the 5 year median ROE is 28.6%.  The ROE based on comprehensive income is around the same.  For 2011 it is 30.1% and it has a 5 year median of 28.6%.

When I look at insider trading, I find no insider buying and no insider selling.  It would seem that options are being turned into shares.  There are 14 institutions that hold 54% of this company.  There has been some buying and selling over the past 3 months and they have reduced their holdings by 4% over this period.

I get 5 year median low and high Price/Earnings Ratios of 7.60 and 11.17.  The current P/E of 9.96 is just above the median P/E Ratio of 9.38.  The current P/E of 9.96 is low.  Basically any P/E below 10 is low.  The P/E is just not relatively low to past P/E’s.

I get a Graham Price of $21.90.  The current stock price of $25.70 is some 17% above the Graham price.  The low difference between the Graham price and stock price is the stock price being 20% lower than the Graham Price.  The high difference between the Graham price and stock price is the stock price being 38% higher than the Graham Price.

I get a 10 year median Price/Book Value Ratio of 2.68 and a current P/B Ratio of 3.11.  The current ratio is some 16% higher than the P/B Ratio.  As expected the current dividend yield is lower than the 5 year dividend yield because of the recent dividend cut.  However, the dividend yield has been trending down since a peak in 2009.  There is nothing remarkable about the current stock price.  It is neither really high nor really low and seems to be a bit above the median.

There are few analysts that following this stock.  All the recommendations are either Strong Buy or Hold.  The consensus recommendations would be a Buy.  The Strong Buy analysts like it because of low P/E and great dividend yield.  They think the stock is cheap and the company is well run.  Another analyst thought the price a bit high and would prefer it at $20.50 to $21.50 for it to be a buy.

At the moment I am not buying anything.  However, this is an interesting stock with a good dividend and seems to be reasonable priced.

Badger is North America's largest provider of non-destructive excavating services. Badger traditionally works for contractors and facility owners in the utility and petroleum industries. Badger's business model involves the provision of excavating services through two distinct entities: the Operating Partners (franchisees in the United States and agents in Canada), and Badger Corporate. Its web site is here Badger. See my spreadsheet at bad.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.