Tuesday, May 15, 2012

Genivar Inc.

I own this stock (TSX-GNV). I made two purchases at the end of 2011 and according to Quicken I have made per year return of 33%, but Quicken rather distorts such things when the period is less than one year. My stock is up is only up 12.5%. Some 8.3% of my return is from dividends. Even though the 5 year median dividend yield is just 5.4%, this company has given out a couple of special dividends over the past few years.

I have bought this stock because of an article I read in the G&M in September 2011. See the article. This could also be a cautionary tale. They got things wrong about Genivar. They give examples of what they say are six profitable, growing companies that have a dividend payout ratio of less than 80 per cent and whose dividend yield has grown over 25 per cent from six months ago.

However, why Genivar fits is that they gave a special, non-repeatable, dividend in 2011. I never invest without doing my own investigation. I turned up this error, but I still liked the company when I investigated it, so I did buy it. You can check such simple things like what dividends were paid at Yahoo Finance . This stock would have a symbol of GNV.TO on this site. Under historical prices, you can find what dividends have been paid for various periods.

In fact, a thing I liked about this company is that in the face of uncertainty, they rewarded their shareholders with a special dividend because they could, but they did not raise the dividends. I am aware that not all dividend investors like this, but it is the prudent move. Good companies only increase their dividends when they can see that they can sustain them.

This company has not been around all that long. It had its IPO in May 2006 and went public as an Income Trust under the name of Genivar Income Fund (TSX-GNV.UN). When it was to become a corporation, it stopped increasing its dividends (2010). However, the Dividend Payout Ratios were not all that high for an Income Trust. The 5 year median DPRs for earnings is 75% and for cash flow is 45%.

However, analysts do not expect this company to do as well in 2012 as it did in 2011. DPR for earnings is expected to be rather high at 92% for earnings. The results for the first quarter of 2012 are in and the EPS came in at the bottom end of the estimates for this quarter. See first quarterly report at G&M. See comments on 1st quarter at G&M. Desjardins Securities noted earnings fell short of their expectations for the 1st quarter, but they still upgraded their recommendation from Hold to Buy.

Before 2010 this company had a good record of dividend increases with a 5 year growth in dividends of 24% per year. However, you have to wonder if it will increases dividends in the future, because on their site they say “The Corporation’s general policy is to pay a dividend representing the greater of (1) $1.50/share; or (2) 50% of net income per adjusted common share, giving consideration to cash position during the year, future cash flow requirements as well as growth and investment opportunities.” This would imply that they will keep the dividends level and give special dividends as they can.

The 5 year total return on this stock to the end of 2011 is 22.17% per year, with the dividend portion at 8.22% and the capital gains portion at 13.95%. Dividends make up 37% of the return.

There is only some 5 years of data on this company, but most items I follow have good growth, except for cash flow. Cash flow growth over the past 5 years is up just 5.8%. Growth in revenues is good at 14.9%. Earnings growth is good at 9.7% and book value growth is good at 9%.

All debt ratios are good. The current Liquidity Ratio is very good 2.11 as is the current Debt Ratio of 3.74. Both the current Leverage and Debt/Equity Ratios are good at 1.37 and 0.36.

The Return on Equity is just within the good range of 10% to 15% with a ROE at the end of 2011 at 10%. The 5 year median ROE is a bit better at 11.4%. The ROE on comprehensive income confirms ROE on net income with a value of 10%.

At the moment, I am pleased with this company. However, I intend to keep an eye on dividends. I prefer companies that give increasing dividends.

Genivar Inc. is an engineering services firm providing private and public-sector clients with a complete range of professional consulting services throughout all project phases, including planning, design, construction and maintenance. Mainly in Ontario and Quebec, but has some international exposure. Its web site is here Genivar. See my spreadsheet at gnv.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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