Linamar Corporation

On my other blog is some comment on "Dividend and Interest Return". See comments blog.

I do not own this stock of Linamar Corporation (TSX-LNR). I am been tracking this company for some time. It is a stock that I notice has been recommended as good value and a dividend payer. When I initially looked at this stock back in 2000 I did not think it was a stock that fit my investment philosophy. It is not a stock I would want to buy and hold.

This stock reached a peak in 1998 as far as stock price goes, because the P/E went way up. The P/E Ratio probably had a peak around 30. The P/E has since been lower and the 10 year median high P/E is just 15.58. It is an auto parts supplier and this has been a tough business to be in over the past while.

It is a dividend paying company and dividends have increased over time. However, increases are inconsistent. The company tends to have the same dividend for a while and then goes to a big increase. The last increase was in 2011 and it was for 33%. The 5 and 10 year growth dividends are 5.9% and 7.2% per year, respectively.

Note that they temporarily reduced dividends by 50% in 2009 a year they had an earnings loss. It was probably prudent, but hard is a shareholder depends on dividends.

Dividend yields are low, with a 5 year median yield of just 1.59%. The Dividend Payout Ratios are also quite low with the 5 year median DPRs being 11.95% for earnings and 6.68% for cash flow. You would not buy this stock for their dividends. When I buy stocks with low dividend yields I like them to have very good dividend growth. This company has rather low dividend yields and rather moderate dividend growth. However, it is good to look at all sorts of companies. This is the way you find ones that you like.

Total return on this company has not been very good over the past 5 and 10 years. Total return was 1.80% and 2.90% per year over these periods. The Dividend portion of this return was 1.66% and 1.61% per year. That makes the dividends 92% and 55% of the total returns during these periods. Capital gain was just 0.14% and 1.29% per year during these periods.

Best growth for this company was in Revenue per share at 6.43% and 9.75% per year over the past 5 and 10 years. The number of shares outstanding has been going down marginally, so Revenue growth is not quite as good with the 5 and 10 year growth at 4.8% and 9% per year.

There is not much growth in earnings, but 10 year growth is better than 5 year growth. The 5 and 10 year growth in EPS is 2.3% and 7% per year, respectively. Growth in cash flow is better with growth in CFPS for the last 5 and 10 years at 4.8% and 8.2% per year, respectively. Growth in Book Value is also low with BVPS growing over the past 5 and 10 years at 3.2% and 5.7% per year, respectively.

The Return on Equity for the financial year of 2011 was 11.1%. Both this and the 5 year median ROE at 10.3% are good. However, the ROE using comprehensive income is lower at 8.1% for 2011 and it has a 5 year median of 7.9%. This would tend to question whether the quality of the earnings for this company is quite as good as it first appears.

The current Liquidity Ratio is very good at 1.75. However this ratio has bounced around a bit, and has a 5 and 10 year median ratios of 1.52 and 1.37. However, cash flow is good for this company. The current Debt Ratio is 1.68 and this one has often been quite strong and the company has 5 and 10 year median ratios of 1.90 and 1.99. The current Leverage Debt/Equity Ratios are fine at 2.47 and 1.47, respectively.

The problem I see with this stock and why I would not currently invest in it is that it is not a good dividend paying stock. For me, if a stock has a low dividend yield, I would like it to have very good dividend growth. The higher the yield on a stock, the lower the growth I will accept. This stock has low dividend yield and only a moderate growth in dividends.

The dividend yield potential on your original purchase price after 10 and 15 years of owning this stock with dividend increases based on the 5 year median growth rate would only be about 2.6% and 3.5%.

I track a number of stocks, even ones I would not buy if for no other purpose than for comparison.

Linamar Corporation is a diversified global manufacturing company of highly engineered products. It is a world-class designer and diversified manufacturer of precision metallic components and systems for the automotive industry, and mobile industrial markets. Its web site is here Linamar. See my spreadsheet at lnr.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.