Shoppers Drug Mart 2

On my other blog I am today writing about not buying bonds...continue...

I own this stock of Shoppers Drug Mart (TSX-SC, OTC- SHDMF). I bought the stock for my TFSA in 2009, 2010 and 2011. By May of 2011 I sold some shares. I have made the grand total of 1.03% per year on this investment. The portion attributable to dividends is 2.97% per year with a capital loss of 1.76% per year.

When I look at insider trading, I find no insider selling and no insider buying. Recent options given out seem to have been kept by insiders. Shoppers are also buying back shares. For this company there are not only things call options, but also other options like vehicles called Rights Deferred Share Units and Rights Restricted Share Units

The CEO has a few shares and has options are worth $11M. The CFO has a few shares and has options worth $3.7M. An officer has a few shares and has options worth $0.4M. A director has no shares and has options worth $0.4M. This is just to give you an idea on insider share ownership and option values.

The 5 year low, median and high median Price/Earnings Ratios are 13.91, 14.76 and 16.90. The current P/E Ratio is 14.31 based on a stock price of $42.80 and 2013 earnings of $2.99. I get a Graham price of $37.6 and the current Price/Graham Price Ratio is 1.15. The 10 year low, median and high median P/GP Ratios are 1.48, 1.68 and 1.83.

The current Dividend yield is 2.48% and the 5 year median 2.26% a value around 9% lower than the current dividend yield. I get a 10 year median Price/Book Value per Share Ratio of 3.16. The current P/B Ratio is 2.06. The current one is only 66% of the 10 year median Ratio.

On testing the current stock price, it is not surprising that the current stock price does better against the longer term median values as the relative stock price has been going down as the company is switching from a growth stock to a mature stock. I would go with the dividend yield test and suggest the stock price is reasonable.

When I look at analysts' recommendations, I find Strong Buy, Buy, Hold and Underperform recommendations. Most of the recommendations are in the Hold category and the consensus recommendations would be a Hold. The 12 month consensus stock price is $44.30 and this implies total returns of 5.98% with 2.48% from dividends and 3.50% from capital gains.

Shoppers suffer from regulatory pressure. There have been recent coordinated efforts by every province to reduce generic prices. This company also operates in a challenging economic and competitive environment. Some analysts like the stock as a defensive stock; others feel that since a regulated market is a good part of their business, the stock will continue to go sideways.

There is a positive article in the Financial Post with the title of "Seniors discount pays off for Shoppers Drug Mart, sending profit, dividend higher". A number of analysts mentioned that it has recently raised its dividend. They have raised the dividend every year since starting a dividend in 2005.

I am going to hold on to the stock in this company that I currently have. For dividend paying stocks, over the longer term, the capital gain tends to equal the growth in dividends. I expect dividends to grow at 6 to 7% per year and with dividends at 2.5%, I expect a reasonable return of 8 to 9% per year. We are still in a secular bear market, so this may not happen for a while. However, I do invest for the longer term.

Shoppers Drug Mart Corp. is a licensor of Shoppers Drug Mart in Canada and Pharmaprix in Quebec. The company owns and operates Shoppers Home Health Care stores. It also owns MediSystem Technologies Inc. and the new Murale Stores. Its web site is here Husky. See my spreadsheet at sc.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.