Wednesday, March 27, 2013


On my other blog I am today I am writing about stock Buy Backs...continue...

I own this stock of BCE Inc. (TSX-BCE, NYSE-BCE). This is one of the first stocks I bought way back in 1982. Hard to know how much I made just on BCE as they spun off both Nortel (2000) and Aliant (2006). Both these stocks I sold as I did not want to keep for the long term. I also sold half my shares of BCE in 2005. I have tracked this stock in Quicken since 1987. I also bought BCE for my RRSP account in 1999.

According to Quicken I have made a total return of 12.94% per year when I include all these stocks in the analysis and include my Trading and RRSP accounts. I think that is the only way to analyze my investment. Of the total return I made of 12.94% per year, 7.75% was from capital gains and 5.19% from dividends.

If I just look at my trading account from which I held the stock bought in 1982, but have only tracked from 1987, I have made less. In this case my total return was 9.4%, with 3.38% from capital gains and 5.57% from dividends. This is still a good return. If you look at the last 5 years, the total return on this stock is 5.43% per year with 1.46% from capital gains and 3.97% from dividends.

Current dividend yield is 4.94%. This stock has a fairly good record of dividend increases over the past 5 and 10 years with dividend growth at 8.5% and 6.2% per year over these periods. Lately they have increased the dividend twice a year, with the most recent increase at just 2.6%. The prior one was for 4.6%. Total dividend increased in 2012 by 7.3%.

The Dividend Payout Ratios are good with the 5 year median DPR for earnings at 71% and the 5 year median DPR for Cash Flow at 27%. These DPRs are close to what is expected this year and next year.

Over the past 5 and 10 years the outstanding shares have decreased by 0.75% and 1.65% per year. Shares increased due to stock options and share issues and decreased due to share buy backs.

Revenue has only increased by 2.3% and 0.6% per year over the past 5 and 10 years. Revenue per share has increased by 3% and 2.2% per year over these periods.

Earnings are not much better with 5 year EPS down by 7% per year and only up by 2.5% per year over the past 10 years. If you use 5 year running averages, earnings are down by 0.8% and 1.4% per year over the past 5 and 10 years. The reason for the variation in the two views is because earnings have tended to fluctuate year to year. 5 years ago earnings were at a high that has not been obtained since.

When I look at cash flow per share, growth is flat over the past 5 years and has increased by 2.5% per year over the past 10 years. Even growth in book value per share is not great with book value decreasing by 5.5% per year over the past 5 years and increasing by only 1% per year over the past 10 years.

The Return on Equity looks very good at 20.7% for the financial year of 2012. The 5 year median is also good at 11.9%. However, ROE looks good because book value has decreased in the last couple of years. Sometimes high ROE is not a great thing and too high ROE can point to problems, not a great stock.

The ROE on comprehensive income has been very different over the last two years with the ROE on comprehensive income at 12.3% for 2012 (that is a 41% difference). The 5 year median ROE for comprehensive income is much closer to the ROE on net income at 11.8%. (What the difference between the comprehensive income and net income does is to call into question the quality of the net income.)

The Liquidity Ratio is low even for BCE at 0.58. This means that current assets cannot cover current debt. A couple of things mitigate this. First there is a current portion of Long Term Debt included in the current debt, but it has been handled. Take of this debt and Liquidity Ratio rises to 0.85. Still current assets cannot cover current debt (until ratio is 1.00). Another thing is that cash flow after dividends raises the 0.58 ratio to 1.15 and raises the 0.85 ratio to 1.68. However, this is a retail type stock and cash flows are not, by any means, assured.

If you got any decent size of a portfolio you probably should have exposure to at least one stock in this communications sector. Although I must admit at this time I am not very excited about these stocks. This stock does provide a decent dividend. Demand for telecom products is high and growing. The question is can these companies make money even though their prices are high? BCE's profits certainly have not grown much at all in the last 5 years.

This company will probably provide a good dividend and maybe some capital gains over the next while.

BCE is Canada's largest communications company, providing the most comprehensive and innovative suite of communication services to residential and business customers in Canada. Operating under the Bell and Bell Aliant brands, the Company's services include Bell Home phone local and long distance services, Bell Mobility, Virgin Mobile and Solo Mobile wireless, high-speed Bell Internet, Bell TV direct-to-home satellite and VDSL television, IP-broadband services and information and communications technology (ICT) services. Its web site is here BCE. See my spreadsheet at bce.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.

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