I own this stock (TSX-AFN). I first bought this stock in October 2011 and then some more in December 2011. The stock has gone up 17% since I bought it. Some 8.8% of my total return is in dividends. This stock used to be an Income Trust company.
This company is one of the few old Income Trusts not to reduce their dividends on conversion to a corporation. They also increased their dividends at the end of 2010 some 17.6%. There was no dividend increase for 2011. The Dividend Payout Ratios are a bit high with 5 year median ratios at 123% and 63% for earnings and cash flow. The DPR for earnings is expected to be lower in 2012 at 94%.
The company has done well in increasing dividends. The company only went public in 2004, but for the last 5 and 7 years the growth in dividends is 9.3% and 17.4% per year. As an Income Trust, the dividend yield was high and the company has a 5 year dividend yield of 6.8%. However, the current yield is lower at 5.8%. It has been expected that old Income Trust company’s dividend yields will decline to a 4 to 5% range.
The total return for this company is good, with the return at 30% and 27.8% per year over the past 5 and 7 years. Of this growth, dividends would account for 9.9% and 10% per year. Capital gain would be 20.1% and 17.8% per year. Dividend composed 33% and 36.6% of the total return over the past 5 and 7 years.
Going forward, the dividend yield will be lower and over the long term will probably be closer to 4 to 5% of the total return. How much this stock will grow in capital gains is anyone’s guess. Personally, I would expect it to be at least around 8% per year. However, most analysts currently do not see the stock going up much more within the next 12 months.
Growth is mainly quite good for this company. The 5 and 10 year growth in revenue per share is 27% and 15% per year. The increase in EPS is lower with 5 and 7 year growth at 2.8% and 7% per year, respectively. Growth in cash flow is good with 5 and 7 year growth at 10% and 17.5% per year, respectively.
And growth in book value is fine with 5 and 7 year growth at 9.7% and 7.9% per year, respectively. However, the new account rules seem to have a big effect on the book value and if the accounts were under the new rules for 2010, the book value would be slightly lower in 2011 rather than 22% higher.
Debt ratios are quite good with the current Liquidity Ratio at a very good 3.16 and the current Debt Ratio at a quite good 2.05. The Liquidity ratio is better than the 5 year median ratio of 2.57 and the Debt Ratio is equal to the 5 year median ratio of 2.05. The current Leverage and Debt/Equity Ratios are also good at 2.00 and 0.98. These last two are higher than, and therefore not as good as the 5 year median ratios of 1.68 and 0.68.
The last thing to talk about is the Return on Equity. The ratio is quite good with the ROE for 2011 being at 12.4% and the 5 year median ROE being at 17.3%. The ROE based on the comprehensive income is even higher at 15% for 2011 and 15% for the 5 year median value. The high ROE based on comprehensive income tends to say that the net income is of good quality.
I will hold on to the shares I have. Buying this stock was part of my plan to get into riskier dividend paying stocks because I wanted to diversity my portfolio. Unfortunately, moving away from financials and utilities stocks mean you will take on more risks. Also, these stocks tend to be more volatile and are hit harder in bear markets. However, over the long term I expect to do just fine with them.
Ag Growth is a leading North American manufacturer of portable grain handling equipment, consisting of augers, belt conveyors, grain drying, fencing, post-hole augers, and other ancillary grain handling accessories. This company has 1,400 dealers and distributors in Canada and the United States. Its web site is here Ag Growth. See my spreadsheet at afn.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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