DirectCash Payments Inc

I do not own this stock DirectCash Payments Inc. (TSX-DCI, OTC-DCTFF). I wanted to review stocks touted in the 2009 Money Show. There was a lot of talk at this show about some of the Unit Trust being currently good buys with very good yield. This is one of the stocks that were recommended. This is why I started to following this company.

A lot of old income trust companies are having a hard time getting the Dividend Payout Ratios into good shape, especially, the DPR for Earnings. The DPR for Earnings has been much too high for this company. For the financial year ending in 2012 it was 300%. For 2013 it is expected to be over 1,000%. The DPR for cash flow is doing better. The 5 year median DPR for Cash Flow is 60%. This DPR is expected to be in the mid 30% range over the next couple of years.

There has been no dividend increases since 2007. The 5 and 7 year growth in dividends is at 0% and 3.7% per year. No one seems to expect any dividend growth anytime soon. The dividend yield has been decreasing since the company convert to a corporation. The current one is high at 5.86%. The company has promised not to decrease dividends.

Just because dividends are not increasing, that does not mean that shareholders have not made money. The 5 and 8 year total returns are at 23.25% and 14.59%. The dividend portion of this return was 9.36% and 7.87% per year over the past 5 and 8 years. The capital gains portion of this return was 13.89% and 6.72% per year over the past 5 and 8 years. Note that in the future, the dividend portion of the return will be lower as the dividend yield has moved lower.

The debt ratios are rather low on this company. The Liquidity Ratio for the financial year ending in 2012 is 1.15. If you add in cash flow after dividends the ratio goes to a better 1.53. However, the 5 year median Liquidity Ratio is just 0.88 and the 5 year median Liquidity Ratio adding in cash flow after dividends is just 1.06. If the Liquidity Ratio is under 1.00, it means that the current assets cannot cover the current liabilities.

The Debt Ratio is generally good. The ratio for the financial year ending in 2012 is 1.48 (but I would prefer one that was 1.50 or higher). The 5 year median Debt Ratio is good at 2.05. This ratio deals with total assets and total liabilities. The current Leverage and Debt/Equity Ratios are rather high at 3.08 and 2.08. The 5 year median ratios are much better at 1.91 and 0.91, respectively.

They took out more debt in 2012 for acquisition purposes. The debt ratios have improved for the 1st quarter of 2013 with a Liquidity Ratio of 1.19. If you had in cash flow estimates exclusive of dividends it rises to 2.04. The Debt Ratio increases to 1.50 for this first quarter. Leverage and Debt/Equity Ratios are still rather high but a bit better at 3.01 and 2.01.

Growth in revenue, earnings, cash flow and book value has been quite good over the past 5 and 7 years. For example, Revenue per Share has grown at 12% and 16% per year, respectively. Cash Flow has grown at 13% and 12% per year over the past 5 and 7 years. Earnings have been rather erratic. Earnings for 2006 were $0.19, for 2007 were $0.05, for 2011 were $1.47, for 2012 were $0.46.

When I look at analysts’ recommendations, I find only a Strong Buy and a Hold recommendation. The consensus would therefore be a Buy. The 12 month stock price consensus is $27.50. This implies a total return of 22.63% with 5.86% from dividends and 13.77% from capital gains.

A number of analysts seem to like this company and remark on the high dividend yield. One thought after the current debt is reduced that they may be in a position to raise dividends. There is a current payday loan class action suit going on in Manitoba that they are involved with. They offer products that support payday loan companies among other customers.

Looking at my stock price tests, they all point to the stock price being relatively high. For example, the current P/E Ratio is 196.25. The 7 year P/B Ratio is 2.07 and the current one is 33% higher at 2.76. I am really not interested in companies that cannot growth their dividends. See my spreadsheet at dci.htm.

DirectCash is the leading provider of ATMs, debit terminals, prepaid phone cards and prepaid cash cards in Canada. They have built a substantial technological, sales and service infrastructure that enables them to offer convenient and secure revenue streams for businesses across the country. DirectCash operates in Canada, the United States and Mexico. Over 40% owned by Gallacher family. Its web site is here DirectCash.

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.