Reitmans (Canada) Ltd

On my other blog I am today writing about the Importance of Capital...continue...

I do not own this stock Reitmans (Canada) Ltd. (TSX-RET.A, OTC-RTMAF). I am following this stock as it was a stock on Mike Higgs' dividend growth stocks list.

I have dividend information going back to 1995. The company does not increase the dividend every year, but when they have not increased them for a few years, the next increase can be a good one. They probably stopped increasing dividends lately because the Dividend Payout Ratio for Earnings was above 100% for both the last two years ending in January 2012 and January 2013.

This stock peak in 2010 and has not done well since. The economic recovery from the last recession has been slow. This stock really has not done well since 2010. The stock price is down by almost 60%. Earnings are down more, as they have decreased by 65% as has cash flow. However, Revenue is only down by around 7%.

Dividend Payout Ratios for cash flow per share is usually around 33%, but the one for the financial year ending in January 2013, is at 64%. The DPR for EPS is even higher at 195%. Analysts had expected an increase in EPS for the financial year ending in January 2014, but if you look at the year ending at second quarterly results and the year ending in January 2013, EPS is down by 64%.

Analysts seem to expect that the cash flows for the years ending in January 2014 and 2015 will be negative; however, no analyst seems to feel that the dividends will be cut. The 5 and 10 year growth in dividends are at 3.9% and 23% per year. Even with the current drop in stock, the 5 and 10 year total return for this stock to date is at 2.52% and 11.3% per year.

Return on Equity has in the past been quite good, but the ROE for the year ending in January 2013 is at 5.9%. If you look at ROE for the year ending in August 2013, it is even lower at 2.1%. The difference in ROE on comprehensive income and net income has varied. The difference in ROE for the year ending in January 2013 was fine with the ROE on comprehensive income at 4.3% lower than the ROE on net income.

However, if you look at the difference between these ROE for the year ending in August 2013, the ROE on comprehensive income is 22% lower. This is not good. This is basically a warning.

One thing that this stock has going for it is the very good debt ratios. The Liquidity Ratio is 3.16. The debt Ratio is also very good currently at 3.93. These good ratios, of course, are likely to deteriorate if the company cannot make any money. The current Leverage and Debt/Equity Ratios are also good at 1.34 and 0.34. The other thing that is good is there is a lot of insider ownership, which I will talk about more tomorrow.

Often I tend to suggest investing in beaten down stocks. The market tends to over react to bad news from a company. However, this is a retail stock and this makes investing in it when it is beaten down more risky than say a utility stock. See my spreadsheet at ret.htm.

This is the first of two parts. Second part will be posted on Tuesday, September 17, 2013 and will be here.

Reitmans (Canada) Limited operates a network of clothing stores specializing in women's & men's fashions and accessories. The company operates stores under the names Reitmans, Smart Set, Pennington Superstores, RW & Co., Thyme Maternity, Addition-Elle, and Cassis. Its web site is here Reitmans.

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.