Tuesday, May 1, 2012

Melcor Developments Inc

I own this stock (TSX-MRD). I started following this stock because it was on Mike Higgs’ list of dividend growth stocks. Mike was the first financial blogger who I followed.

I first bought this stock in 2008 and then bought some more in 2009. I have made a return of 12.4% per year on this stock. Of this return, 9.7% per year comes from capital gain and 2.7% per year comes from dividends. So, 21.5% of my return comes from dividends.

I would not have made this much if I had not bought some stock in 2009 when it hit a bottom after the 2008 bear market. The stock price is still at half the value it reached in 2007. Dividends peaked in 2008 and although the company has been increasing them lately, they are still some 4.8% lower than the peak year of 2008. Dividends dropped some 40% between 2008 and 2009.

There was only one increase in dividends in 2010 and dividends did not increase in 2011. Dividend growth rate on this company is still not bad when you consider this. The dividend growth over the past 5 and 10 years is 5.9% and 18.5% per year.

The Dividend Payout Ratios are good with 5 year median DPR of 24% for earnings and 18% for cash flow. (See my site for information on Dividend Payout Ratios). This is one of the few companies that pay dividends twice a year (rather than quarterly).

The financial year of 2011 was generally good for this company. However, the change to the accounting rules of IFRS also helped. There was growth in revenues, earnings and book value. However, cash flow fell a bit. Generally, the 10 year growth rates are better than the 5 year ones. The 5 and 10 year growth in cash flow is 0% and 13.3% per year.

The best growth is in earnings and that is 7% and 17% per year over the past 5 and 10 years. Revenue growth is at 2.3% and 10.5% per year over the past 5 and 10 years. Book Value grew the most with a 92% rise in 2011, but all but 13% of that rise seems to be attributable to the new accounting rules.

As far as debt ratios go, they all are good. The current Liquidity Ratio is 3.98. The current Debt Ratio is 1.98. Both these are very good. The current Leverage and Debt/Equity Ratios are also fine at 2.04 and 1.03.

The next thing to look at is Return on Equity. For 2011, this was 13.6%, which is a good rate. The 5 year median ROE is also good at 13.2%. The ROE based on comprehensive income is also similar at 13.7%.

The problem with investing in this company is that very few analysts or anyone else that is following the company. It is a small real estate company out of the west. I am going to retain the stock I have. I have only 1% of my portfolio in this stock.

And, I noted on my Investing blog the link to the Money Sense interview.

This company is primarily engaged in the acquisition of land for development and sale of residential communities, multi-family sites and commercial sites. It operates mostly in B.C. and Alberta. The company also develops, owns and manages commercial income properties, as well as four golf courses. Its web site is here Melcor. See my spreadsheet at mrd.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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