Melcor Developments Inc. 2

On my other blog I am today writing about possible cheap dividend stocks to buy continue...

I own this stock of Melcor Developments Inc. (TSX-MRD, OTC-MODVF). This was one of the stocks on Mike Higgs' list of good dividend growth stocks. So I looked into it and bought it. I bought this stock first in 2008 and then some more in 2009. It is a little followed real estate company from Western Canada.

When I look at insider trading, I find insider selling at $5.3M and no insider buying. There is insider ownership, the most notable is that of the Chairman who owns shares worth around $35.5M. There is some other insider ownership with the CEO having shares worth around $1.2M, an officer having shares worth around $2.0M and a director with shares worth around $2.7M.

For 2013 the outstanding shares were increased by 547,000 for stock options with a book value of $7.8M. This number of shares was worth $11M at the end of 2013. This number of shares is also 1.8% of the outstanding shares. I looked at the increase in outstanding shares for 2010 to 2012 and they were all under 1%.

When I look at the increase in the number of shares for stock options for 2013, I think that an increase of 1.8% is rather high. Most companies increase their outstanding shares for stock options at a lower percentage of the outstanding shares. Take TransCanada Corp which I recently reviewed where the share option book value was $80M, a much higher value than for this stock. However, the increase in actual shares for TransCanada Corp only was at 0.3% of the outstanding shares of the company.

The 5 year low, median and high median Price/Earnings per Share Ratios are 5.23, 6.07 and 6.79. The current P/E Ratio is 10.17 based on a stock price of $21.56 and a 2014 EPS estimate of $2.12. This stock test suggests that the stock is rather high. However, the P/E Ratios on this stock are very low.

I get a Graham Price of $21.56. The 10 year low, median and high median Price/Graham Price Ratios are 0.39, 0.61 and 0.78. The current P/GP Ratio is 0.57 based on a stock price of $21.56. This stock test suggests that the stock is in the reasonable price range.

The 10 year Price/Book Value per Share Ratio is 1.02. The current P/B Ratio is 0.86 a value just 84% of the 10 year ratio. This is based on a stock price of $21.56 and a BVPS of $25.03. This stock test suggests that the stock is in the reasonable price range. Also, when the P/B Ratio is below 1.00 a stock is generally considered to be cheap.

I get a 5 year median dividend yield of 2.92% and the current dividend yield is 2.32%, a value some 21% lower. This stock test suggests that the stock price is relatively rather high. However, if you look at historical average and median dividend yields of 2.83% and 2.77%, the current dividend yield is from 16% to 18% lower. This stock test suggests that the stock is in the reasonable price range, but it might be towards to top end of this range.

As far as I can see, there seems to be only one analyst following this stock and the analyst's recommendation is a Buy. The 12 month stock price is $29.50. This implies a total return of $39.15% with 2.32% from dividends and $36.83% from capital gains.

This company is based on Edmonton and the Edmonton Journal has a positive article on this company and its good showing in 2013. There is a second article in the Edmonton Journal talking about the chairman who says that Melcor is a public company with a family-company flavor.

This is a small real estate company from Western Canada. It is a rather risky stock to own although I have done just fine on it. You would buy it for diversification. See my spreadsheet at mrd.htm.

This is the second of two parts. The first part was posted on Friday, April 04, 2014 and is available here. The first part talks about the stock and the second part talks about the stock price.

This company is primarily engaged in the acquisition of land for development and sale of residential communities, multi-family sites and commercial sites. It operates western Canada and the US. The company also develops, owns and manages commercial income properties, as well as four golf courses. Its web site is here Melcor.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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