Tuesday, May 7, 2013

Davis & Henderson Corp

I own this stock of Davis & Henderson Corp. (TSX-DH, OTC- DHIFF). I first bought this stock as an income trust in 2009. I bought more in 2010, 2011 and 2013. I have made a return of 21.78% per year with 12.98% from capital gains and 8.8% from dividends.

When I bought this stock it was an income trust with a very good dividend and a history of dividend increases. However, when it became a corporation, it decreased it dividends by 35%. It has started to increase dividends again and the last increase was for 3.2% in 2012.

The 5 year median Dividend Payout Ratio for earnings is high at 100%, but this is expected to be in closer to 70% in 2013. The 5 year median DPR for cash flow is better at around 70% and this is expected to continue.

The outstanding shares have increased by 6.2% and 4.6% per year over the past 5 and 10 years. Shares have increased due to stock options and share issues. Shares were issued for acquisitions. Revenue has increased by 15% and 13% per year over the past 5 and 10 years. Revenue per share has increased by 8.7% and 7.6% per year over the past 5 and 10 years.

Earnings per Share is down by 9% over the past 5 years and up by 1% over the past 10 years. 5 years ago, EPS hit a peak and if you look at the 5 year running averages over the past 5 years, the EPS is up by 0.7% per year over the past 5 years. Cash Flow per Share is up by 1.8% and 5% per year over the past 5 and 10 years. CFPS also peaked 5 years ago and if you look at the 5 year running averages over the past 5 years, the CPFS is up by 4.7%.

This company services financial companies and was hit by 2008 problems and has been recovering, but unevenly since. Analysts expect only modest gains in revenues, but better gains in EPS over the next couple of years. Modest gains in revenues are expected because of this company's selling of non-core assets, but this is not expected to materially affect the EPS.

The growth in Book Value per Share is also quite low and has only increased by 3% and 2% per year over the past 5 and 10 years.

Last year was not a good year for earnings and the ROE was just 9.8%. The ROE on comprehensive income was close at 9.4%. The 5 year median ROE for net income was much better at 14.7% and the ROE for comprehensive income was 14.8%.

The Liquidity Ratio has never been very good on this stock and the latest one is just 0.96. This means that the current assets cannot cover the current liabilities. However, if you add in cash flow after dividends, this ratio raises to 1.75 a good ratio. However, Liquidity does depend on cash flow.

The Debt Ratio has always been very good and the latest one is 2.20. The Leverage and Debt/Equity Ratios have always been quite good with the latest ones at 1.84 and 0.84. (For Debt Ratio, higher is better and a good ratio is 1.50 and above. For the Leverage and Debt/Equity Ratios lower is better. These ratios are low and therefore are good.)

The dividend yield is still quite good on this stock at 5.5%. The latest dividend increases have both been just above 3% and therefore slightly above inflation. According to the Bank of Canada, inflation is running around 1.8% per year over the past 5 and 10 years and at under 1% over the past year.

Just over 40% of my total return is from dividends. This will change going forward as dividends and dividend yields are down. However, DH is recovering and present stock prices are higher than in 2008. It is an ex-income trust that has DPRs under control. It also continues to have a good dividend yield. See my spreadsheet at dh.htm.

Davis & Henderson is a leading solutions provider to the financial services marketplace. Founded in 1875, the company today provides innovative programs, technology products and technology based business services to customers who offer chequing accounts, credit card accounts and personal, commercial, and other lending and leasing products. Its web site is here Davis & Henderson.

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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