Friday, August 24, 2012

The North West Company

I do not own this stock of North West Company (TSX-NWC, OTC-NWTUF). At the 2009 Money Show, a number of people where talking about some former, or soon to be former income trusts being very good investments. This was one company that people were talking about. The dividend yield at that time was 7%.

The dividend yield has come down to a yield of 4.9% yield today. It was expected that a combination of stock increases and dividend adjustments would cause former income trusts to end up with dividends in the 4 to 5% range. With this stock the stock price has more or less held firm, but dividends were, initially at least, reduced by 30%.

The company's Dividend Payout Ratios were not that bad, having peaked at 90% for earnings and 62% for cash flow for the financial year ending in January 2011. They were lower for the financial year ending in January 2012, being 88% for earnings and 44% for cash flow. The DPRs for the financial year ending January 2013 for earnings is expected to be around 77%.

Dividend growth is not bad considering that they were cut 30% in 2012. The 5 and 10 year growth in dividends is 3.7% and 7.1% per year. They have begun to raise the dividends again, and the most recent dividend increase was done for the April 2012 and was for 8.3%.

Total return over the past 5 and 10 years has been quite good, with 5 year returns at 10.63% per year and 10 year returns at 22.13% per year. The dividend portion of these returns is 7.22% and 9.40% per year, respectively. The capital gain portion is at 3.40% and 12.96% per year, respectively. The dividends comprise some 68% and 42% of the 5 and 10 year total returns. However, going forward, the dividends will be down in the 4 to 5% range rather than the past 7 to 9% range.

Growth is generally quite mixed. Revenue and Revenue per Share growth is the same as there has been no growth in shares over the past 5 and 10 years. Revenue growth in the best growth under this company and bodes well for the future. Revenue has grown at the rate of 9.6% and 7.8% per year over the past 5 and 10 years. Cash flow growth is also fine at 8.8% and 7.8% per year over the past 5 and 10 years.

Other growth has not been great. Growth in EPS is just 1.2% and 6.2% per year over the past 5 and 10 years. Growth in book value is the lowest, with its growth at 2.4% and 2.6% per year over the past 5 and 10 years.

Although the ROE based on net income and comprehensive income are both quite good, there is a big difference this year in these ROE calculations. The ROE on net income is 20.4%, with a 5 year median ROE of 25.3%. The ROE on comprehensive is lower at 15.2%, with a 5 year median ROE of 25%. (An ROE from 10% to 15% is considered good. A sustained percentage above 20% is considered above average.)

Debt Ratios on this company are quite good. The current Liquidity Ratio is 2.59, with a 5 year median of 1.66. The current Debt Ratio is 1.83, with a 5 year median of 1.87. The current Leverage and Debt/Equity Ratios are fine, coming in at 2.20 and 1.20, respectively.

Considering the current market situation, this stock is doing quite well. It is a stock I would consider investing in.

The North West Company is a leading retailer of food and everyday products and services to rural communities and urban neighborhoods in Canada, Alaska, the South Pacific and the Caribbean. North West operates 225 stores under the trading names Northern, NorthMart, Giant Tiger, AC Value Center, and Cost-U-Less. Its web site is here North West Company. See my spreadsheet at nwc.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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