The North West Company

On my other blog I am today writing about the presentation at the World Money Show in Toronto by Peter Hodson.

I do not own this stock of 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 changed from an income trust to a corporation in 2011.

When this company changed to a corporation, they cut their dividend almost 30%. Since then they have been again raising the dividend. The last dividend increase was in 2014 and the increase was for 3.6%. The 5 and 10 year change in dividends is a decline for 2.6% per year and an increase of 8% per year over these periods.

The dividend yield is good and the dividend increases are moderate. The current dividend yield is 4.97% and the 5 year median dividend yield is 5.14%. The 5 year median Dividend Payout Ratios for EPS is at 85% and for CFPS is at 56%. The DPR for the financial year ending January 2014 for EPS is 85% and for CFPS is 60%.

Shareholders have done well with the total return over the past 5 and 10 years at 9.88% and 14.25% per year. The portion of this attributable to capital gains is 4.19% and 9.23% per year. The portion of this attributable to dividends is 5.69% and 8.02% per year. Note that the dividend yield has gone down from a median of 7.4% to a median of 4.8% since the company changed from an income trust company to a corporation. This means that the dividend portion of total return will be lower in the future than in the past.

Outstanding shares have not changed over the past 5 and 10 years. It would seem that there have been some very minor increases due to Stock Options and this has only been in the last 2 years. There has been moderate growth in revenue over the past 5 and 10 years, but not in EPS or CFPS. There has been no growth in EPS and CFPS over the past 5 years. There has been growth in EPS over the past couple of years, but not in CFPS.

The Revenue per Share has grown by 2% and 7% per year over the past 5 and 10 years. EPS is down by 3.3% per year over the past 5 years and up by 6% per year over the past 10 years. CFPS is down by 3.5% per year over the past 5 years and up by 2% per year over the past 10 years. The Operational Profit Margin (CF/Revenue) Ratio is trending down and this is not good.

The Return on Equity is good with ratio above 10% each year of the past 10 years. The ROE for the January 2014 financial year is 19.9% and the 5 year median is 22%. The ROE on Comprehensive Income for the January 2014 financial year was 24.7% and the 5 year median is 24.7%. You want these ROEs to be close as that suggests that the earnings are of good quality.

The Liquidity Ratio is fine, but a bit low with the one for last year at 1.43. The Debt Ratio is good at 1.93. The Leverage and Debt/Equity Ratios are a little high but also fine at 2.08 and 1.08.

Growth in revenue is good and you need this for growth in EPS and CFPS. It would be nice to have better growth in EPS and CFPS. The second quarterly results should a slight decline in EPS, but strong growth in CFPS. The strong growth in CFPS is a good sign.

Sound bit for Twitter and StockTwits is: Consumer Staple dividend growth stock. It is a good chance that anyone investing in this stock could have a dividend yield of 10% on their original investment in 10 years' time. This is good. See my spreadsheet at nwc.htm.

This is the first of two parts. The second part will be posted on Friday, October 24, 2014 and will be available here. The first part talks about the stock and the second part talks about the stock price.

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. 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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