Monday, July 14, 2014

TMX Group Ltd.

On my other blog I am today writing about Kiva continue...

I do not own this stock of TMX Group Ltd. (TSX-X, OTC-TMXXF). I looked at this stock in 2008 after I found it on a list of Strongest Dividend Growth stocks. I am interested in such stocks.

It may have been true that this company had strong dividend growth in 2008 as the median dividend growth to 2008 was at 50% per year. However, in 2008 the dividend did not grow at all. There was minor dividend growth in 2010 with a dividend increase of 5.3%. However, for all other years the dividend was flat. The 5 and 10 year growth in dividends is at 1 % and 16.4% per year. It makes you question for value of looking at stocks on such list!

The problem seems to be with earnings and earnings have fluctuated for this company. For example, the last 5 years of EPS are $1.41, $2.64, $3.17, $0.73 and $2.29. The Dividend Payout Ratio for EPS has a 5 year median value of 101%. For 2013, the DPR for EPS was 70%. However, it was 219% in 2012. It is expected to be around 46% in 2014. However, analysts are not suggesting any dividend increase over the next couple of years.

That said, investors have not done badly over the past 5 and 10 years. The 5 and 10 year total returns are at 15.30% and 11.72% per year. The portion of this return attributable to dividends is at 3.93% and 3.95% per year. The portion of this return attributable to capital gains is at 11.37% and 7.78% per year.

Outstanding Shares have decreased by 6% and 2% per year over the past 5 and 10 years. Shares have increased due to Stock Options and Share Issues and they have decreased due to Buy Backs. Revenues have grown well over the past 5 and 10 years. Earnings have grown nicely over the past 10 years, but not over the past 5 years. Cash Flow is the same as earnings.

Revenues are up by 5.6% and 11.60% per year over the past 5 and 10 years. Net Income is down by 7.6% and up by 4.9% per year over the past 5 and 10 years. Cash Flow is flat over the past 5 years and up by 10.3% per year over the past 10 years. Revenues, earnings and cash flows are more important than the corresponding per share values because of the decreasing number of outstanding shares.

The Return on Equity was under 10% on 2 of the last 5 years with the ROE for 2013 at 0.7%. The ROE on comprehensive income is better, but not great at 4.9% for 2013.

The debt ratios are not great. The Liquidity Ratio and Debt Ratios are too low and the Leverage and Debt/Equity Ratios are too high. The Liquidity Ratio is 1.02. Even with cash flow less dividends, this ratio only goes to 1.04. The Debt Ratio is just 1.22. The Leverage and Debt/Equity Ratios are 5.55 and 4.55.

The 5 year low, median and high median Price/Earnings Ratios are 18.45, 21.74 and 24.79. The current P/E Ratio is 16.41 based on a stock price of $56.77 and 2014 EPS of $3.46. The current P/B Ratio of 1.05 is some 68% lower than 10 year median P/B Ratio. The Price/Graham Price Ratio is 0.88. All these point to a rather cheap current stock price.

However, if you use the dividend yield as your metric, the stock price is relatively expensive. The current dividend yield is some 26% lower than the 5 year median of 3.81%. The current dividend yield is 27% lower than the historical average of 3.87%. I must admit that the current dividend yield is just 12% lower than the historical median dividend yield of 3.21%.

When I look at the analysts' recommendations I find Hold and Underperform recommendations. The consensus would be a Hold. The 12 month stock price is $59.50. This implies total return of 7.63% with 4.81% from capital gains and 2.82% from dividends.

Sound bit for Twitter and StockTwits is: Stock is no longer a dividend growth stock. They have just gone through reorganization. There might be regulatory development in Canada and we do not know how this will play out. I must admit I am not interested in this stock because it is not a dividend growth stock. See my spreadsheet at x.htm.

I will have only one entry for this stock as I must do on some stock because I cover too many stocks to do double entries on all that I follow.

TMX Group Ltd. operates two national stock exchanges, Toronto Stock Exchange serving the senior equity market and TSX Venture Exchange serving the public venture equity market, Natural Gas Exchange (NGX), a North American exchange for the trading and clearing of natural gas and electricity contracts and Shorcan Brokers Limited, a fixed income inter-dealer broker. Its web site is here TMX Group.

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.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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