Monday, January 26, 2015

Transcontinental Inc.

On my other blog I am today writing about analysts' recommendations and what they mean continue...

I do not own this stock of Transcontinental Inc. (TSX-TCL.A, OTC-TCLAF). This is a dividend growth stock. It was on a number of dividend lists. However, it fall on hard times after 2008, but currently seems to be recovering. It is still on the Canadian Dividend Aristocrats Index.

First, let's talk about the companies dividends. They did not raise the dividends in 2009, but because of the timing of dividend increase in 2008, the amount of dividends to shareholders in 2009 did go up. The most recent dividend increase was in 2014 and that increase was for 10.3%. This shows that the company seems confident in making money in the future for shareholders.

The current dividend yield on this stock is good and the dividend increases are good. The current dividend yield is 4.07% and the 5 year median dividend yield is 4.1%. The 5 and 10 years dividend growth is at 14.3% and 13.9% per year. However, the good dividend yield has only occurred since 2008. Prior to that year the median dividend for the previous 10 years was at 1%.

This means that the historical highs for dividend yields are very recent dividend yields. Shareholders who bought this stock 10 years ago are only making a yield on their original investment of 2.7%. Shareholders who bought this stock 15 years ago are only making a yield on their original investment of 7.1%.

However, if you bought this stock today, and with a 4.1% dividend and the dividend increases remain around 13.9%, then in 10 years' time you could be earning 15% on your current investment or in 15 years' time you could be earning 28.7% on your current investment.

Cash flow seems to be recovering from 2008, EPS is now increasing and revenue is going down less. The company has decreased the outstanding shares by .7% and 1.3% per year over the past 5 and 10 years. This makes things like Cash Flow more important than Cash Flow per Share.

Revenue is down by 14.8% since 2008. The average decrease since 2008 is 2.96% and in 2014 revenue decreased by 1.9%. For EPS, the company suffered losses in 2012 and 2013. In 2014 they made $1.34 per share however; this EPS is still lower than the $1.42 they made in 2007.

The company has for a while published an Adjusted EPS value. This Adjusted EPS value excludes unusual items and discontinued operations. According to the Adjusted EPS, the company has growth in earnings of 6.1% and 4.1% per year over the past 5 and 10 years.

Cash Flow has increased by 7.1% and 2.4% per year over the past 5 and 10 years. Cash Flow per Share has increased by 7.8% and 3.7% per year over the past 5 and 10 years.

The Return on Equity has been below 10% 5 times in the past 10 years and 3 times in past 5 years. The ROE for 2014 was good at 13.3%, but the 5 year median is just 5.9%. The ROE on Comprehensive Income has been better with the one for 2014 at 16.7% and the 5 year median at 9.6%.

The higher ROE on Comprehensive Income suggests that the company is doing better than raw EPS suggests and perhaps this is why they have an Adjusted EPS and analysts seem to be paying some attention to the Adjusted EPS.

The Debt Ratios are not the best, but they are ok. The Liquidity Ratio is just 1.08. I would prefer to see this at 1.50 or above. If you add in cash flow after dividends, this ratio is 1.62. This suggests that the company could be dependent on cash flow to balance off current liabilities. The Debt Ratio is good at 1.64.

Leverage and Debt/Equity Ratios are a little high but not untypical of an industrial stock. The ratios are 2.56 and 1.56 and I would prefer to see the Leverage and Debt/Equity Ratios below 2.00 and below 1.00, respectively.

Shareholders have made money on this stock in the past. For example, the 5 and 10 years prior to 2006 the total returns was at 10.34% and 16.59% per year with 9.26% and 15.34% per year from capital gains and 1.08% and 1.26% per year from dividends.

For the 5 year period coming into the end of 2014 the total return was good at 9.97% per years with 5.09% per year from capital gains and 4.88% per year from dividends. However, the 10 years total return over the 10 years period to the end of 2014 was not good with a total loss of 0.8% per year with a capital loss of 3.36% per year and dividends 2.52% per year

Analysts seem to expect higher EPS in 2015 and 2016, but they expect lower Revenues and lower Cash Flow. Ultimately, the company's revenue is going to have to grow for cash flow and earnings to grow. The company with their recent dividend increase of 10.3% seems to be more hopeful than the analysts following this stock.

Sound bite for Twitter and StockTwits is: Dividend Growth Stock with some problems. There is the lack of revenue growth, low Liquidity Ratio and Low ROE. I was not interested in buying this company prior to 2008 because of the very low dividend yield. The yield now is high, but so is the risk of buying this company. See my spreadsheet at tcl.htm.

This is the first of two parts. The second part will be posted on Tuesday, January 27, 2015 and will be available here. The first part talks about the stock and the second part talks about the stock price.

Transcontinental creates marketing products and services that allow businesses to attract, reach and retain their target customers. The Corporation is the largest printer in Canada and the third-largest in North America. Its web site is here Transcontinental Inc.

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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