K-Bro Linen Inc

I do not own this stock K-Bro Linen Inc. (TSX-KBL, OTC-KBRLF). People were talking about this stock at the 2009 Toronto Money Show. This was one of the income trust being touted as currently a good buys with a very good yield. It was also recommended by Aaron Dunn who is the Senior Equity Analyst for Keystone Publishing Corp, a publisher of Canadian investment newsletters.

This is another old income trust stock that still pays dividends monthly. This stock was listed in 2005. It has only had a couple of dividend increases and they were around 6.25% and 5.50%. The 5 and 7 year growth in dividends is only 1.6% and 0.9% per year. This is a negative because it is not at the rate of inflation. The dividend yield is decent at 3.5%.

The 5 year median Dividend Payout Ratio for earnings is at 104%. The DPR for this stock was above 100% for earnings when the stock was an income trust. This is quite normal for income trust stocks. The DPR for EPS has been coming down and the 2012 DPR for EPS was at 72%. The 5 year median DPR for cash flow per share is 49%. The one for 2012 was at 38%. (See my blog for information on Dividend Payout Ratios).

The outstanding shares have increased by 5% and 6.8% per year over the past 5 and 7 years. The outstanding shares have increased due to Share Issues and Stock Options. Except for growth in book value, growth under this company has generally been good.

Revenue is up by 11% and 14% per year over the past 5 and 7 years. Revenue per Share is up by 6% and 8% per year over the past 5 and 7 years. EPS is up by 16% and 12% per year over the past 5 and 7 years. Cash Flow per Share is up by 15% and 9% per year over the past 5 and 7 years. However over these periods Book Value per Share is up by less than 2% per year. It should be noted that income trust companies generally do not grow their book values.

The Return on Equity is good with the ROE for 2012 at 16.5% and the 5 year median ROE at 12.2%. The ROE on comprehensive income is almost the same as for net income.

The debt ratios are generally fine, but the Liquidity Ratio has varied and does not always get to the preferred value of 1.50. The 2012 Liquidity Ratio is just 1.31; however the current one is much better at 1.81. The Debt Ratio has always been strong and is currently at 3.04. The current Leverage and Debt/Equity Ratios are quite good at 1.49 and 0.49.

Current shareholders have done well as the total return on this stock is at 22.74% and 18.69% over the past 5 and 8 years. The dividend portion of these returns was at 6.31% and 6.72% with the capital gains was at 16.43% and 11.97%. On a go forward basis, the dividend portion of the returns will be lower. Before this switched from an income trust the dividend yield was in the 7% to 8% range, but it is much lower now at 3.5%.

This company has shown it can be a solid performer. However, since I prefer stocks that raise their dividends, at least to the rate of inflation, I would not currently buy this stock until it has shown an ability to raise their dividends. See my spreadsheet at kbl.htm.

This is the first of two parts. Second part will be posted on Friday, September 20, 2013 and will be here.

K-Bro is the largest owner and operator of laundry and linen processing facilities in Canada. K-Bro provides a comprehensive range of general linen and operating room linen processing, management and distribution services to healthcare institutions, hotels and other commercial accounts. K-Bro currently has seven processing plants in six Canadian cities: Quebec City, Toronto, Edmonton, Calgary, Vancouver and Victoria. Its web site is here K-Bro Linen.

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.