The North West Company

I do not own this stock The North West Company (TSX-NWC, OTC-NWTUF). I wanted to review all the income trust stocks touted in the Money Show of 2009. There was a lot of talk at this show about some of the Unit Trust being currently good buys with very good yield. This stock had a yield just over 7%. The current rate is 4.8%. It was expected that these old income trusts would generally end up with dividend yields between 4 and 5%.

When this company changed from an income trust to a corporation, it decreased its dividends by almost 30%. Since then, it has been increasing its dividends again. The increase in 2012 was 8.3% and for 2013 it was 7.7%. The 10 year growth in dividends is 7.6% per year. I would think that this would be what to expect from dividend growth on this company in the future.

The 5 year Dividend Payout Ratio is 86% for earnings and 56% for cash flow. The DPR for 2012 was 78% for earnings and 43% for cash flow. The DPR for 2013 is expected to be around 81% for earnings and 71% for cash flow. We have second quarter results in and earnings and cash flow seems to be heading towards the estimates given for this company for 2013.

Total return to the end of January 2013, the financial statement date for this company, was 10.93% and 21.29% per year over the past 5 and 10 years. The portion applicable to dividends was 6.26% and 8.42% over these periods. The portion applicable to capital gains was 4.67% and 12.86% per year over these periods.

There have been modest increases in outstanding shares and increases are due to stock options. For example shares increased by 0.02% in 2012. So increase in shares is essentially zero. The growth in revenues has been quite good and quite steady. The growth in earnings is volatile, as this is a retail stock. The growth in cash flow is a bit volatile.

Growth in both revenue and revenue per share has been just above 7% per year over the past 5 and 10 years. It is best to look at the growth in 5 year running averages for earnings per share because of the volatility and the growth here is 8.8% and 9.5% per year, over the past 5 and 10 years. Growth in cash flow per share is at 5% and 7% per year. Using the 5 year running averages for cash flow, the growth is better at 8.8% and 7.7% per year over the past 5 and 10 years.

The Return on Equity has always been quite good with the 5 year median ROE at 25.3% with a ROE for the financial year ending at the end of January 2013 at 22%. The ROE on comprehensive income for the financial year ending in January 2013 is close at 21%.

The Debt Ratios are good for this company, with the Liquidity Ratio at the end of January at 1.60 and the Debt Ratio at the end of January at 1.83. The end of January 2013 Leverage and Debt/Equity Ratios are fine at 2.20 and 1.20.

I think that this company has done well for its shareholders and will continue to do that. However, you should expect lower dividend yields that in the pass, maybe around 4% to 4.5%.See my spreadsheet at nwc.htm.

This is the first of two parts. Second part will be posted on Wednesday, October 2, 2013 and will be here. Tomorrow I will talk about what analysts say and how good the current stock price is.

The North West Company is a leading retailer of food and everyday products and services to rural communities and urban neighborhoods in Canada, Alaska, the South Pacific and the Caribbean. North West operates 225 stores under the trading names Northern, NorthMart, Giant Tiger, AC Value Center, and Cost-U-Less. Its web site is here North West Company.

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.