Canada Bread Co.

I do not own this stock of Canada Bread Co. (TSX-CBY) but I used to. I held it in the past from 1999 to 2000, but I sold as I thought it was going nowhere. One thing that has occurred since I owned this stock is that it merged with Maple Leaf's baking division and now Maple Leaf owns 90% of Canada Bread. It is a stock MPL Communications occasionally talks about.

At one time this stock was just masquerading as dividend paying stock. Why I say it is masquerading as a dividend paying stock? Its dividend was very low (less than 1%) and the dividend did not change from 1992 to 2010. However, lately this stock has changed its dividend policy. In 2011 it raised its yield to around 1.8% and for 2012 it raised it to around 4%. I have looked for an explanation for this, but I have found none.

The new dividend policy changes everything. However, since the company does not say why they have changed it, it is hard to know what will happen in the future. The Dividend Payout Ratios were very low in the past at around 10% for earnings and around 6 or 7% for cash flow. The DPR for 2012 is expected to be around 55% for earnings and 33% for cash flow. This new ratios are fine.

The dividend increases have been substantial. The first increase was for 233% and the second one was a 150% increase. It will be interesting to see what the company does in the future. It would have been helpful for the company to say something about the new dividend policy in an annual statement or on their site.

The total return over the past 5 years is a loss of 3.69% per year. The capital loss is at 4.29% per year and the dividend income is at 0.61% per year. The total return over the past 10 years is much better with a return of 8.24% per year with capital gain of 7.34% per year and dividend returns at 0.9% per year. The total return in the future will change as the dividend yield has increased substantially.

There was a change in outstanding shares in 2003 when the company raised money to pay down debt. This gives the company an increase in outstanding shares of 1.73% over the past 10 years. The outstanding shares have not changed in the past 5 years.

The growth in revenue over the past 5 and 10 years is running at 3.6% and 8.9% per year. The growth in revenue per share over the past 5 and 10 years is at 3.6% and 7.1% per year.

The growth in earnings per share is at 0% and 7.7% per year over the past 5 and 10 years. The growth in cash flow per share over the past 5 and 10 years is at 7.4% and 13.5%. The growth in book value per share is 2.4% and 8.3% per year over the past 5 and 10 years.

The Return on Equity is just ok. The ROE for the financial year ending in 2011 was 7.8% and the 5 year median ROE is a bit better at 9.2%. The ROE based on comprehensive income is lower at6.2%. This ROE has a 5 year median value of 6.2% also. This is quite low. The ROE on comprehensive income speaks to the quality of the ROE on net income.

The Liquidity Ratios has always been low, but it has been improving lately. The ratio for the financial year of 2011 was 1.03 and the current one is 1.20. The fairly good cash flow can make up for this, but it would be better if the Liquidity Ratio is higher.

The Liquidity Ratio with cash flow after dividend is 1.44 for the financial year ending in 2011. Using figures for the last 12 months to the end of the financial period of September 2012, the Liquidity Ratio with cash flow after dividend is 1.62. This is even better as you would want this ratio to be at least at 1.50.

The change in dividend policy really changes the investment characteristics of this stock. It might become of interest to people who like dividend paying stock. However, there is the problem of trading illiquidity as 90% of the shares are owned by Maple Leaf Foods Inc.

Canada Bread is a leading manufacturer and marketer of value-added flour based products, including fresh bread, rolls, bagels and sweet goods, frozen partially baked or par-baked breads and bagels, and specialty pasta and sauces. The Company markets products under a number of leading brand names, including Dempster's, Olafson's, POM, Ben's and Olivieri. Canada Bread has operations in Canada, the United States and the United Kingdom. Its web site is here Canada Bread. See my spreadsheet at cby.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 or StockTwits.