Loblaw Companies Ltd.

Sound bite for Twitter and StockTwits is: Dividend Growth Retail Stock. Earnings for this company peaked in 2011. This is not the only retail stock having problems with the recovery from 2008. See my spreadsheet at lob.htm.

I do not own this stock of Loblaw Companies Ltd. (TSX-L, OTC-LBLCF), but I used to. I owned it from 1996 to 2007. It was originally a great stock. I sold it in 2007 because it was having problems with its tech upgrade to its supply system.

This first thing to notice about the dividends of this company is that part of each dividend is designated at ineligible. Both eligible and ineligible have gross up and dividend tax credits. However, the ineligible dividends are taxed at a higher rate than the eligible dividends. For example, the dividend payable on October 1, 2015 some 3.2% of the dividend is ineligible.

The other thing to notice about dividends for this company is that the dividend is low and the dividend growth is low. Current dividend is 1.39%. The 5 year median dividend is 2.15% a bit better for dividends. The 5 and 10 year dividend growth rate is 3% and 2.5% per year. The reason for the low growth is that dividends were flat from 2006 to 2011, inclusive. Since they started to raise the dividend again, growth is at 5% per year.

All the studies I have seen say that shareholders do the best with high yields. Other things that are good are high growth dividend growth and low Dividend payout Ratios. On this company at least the DPR were low until 2014 with the 5 year median DPR for EPS at 38%. The DPR for EPS for 2014 was 696%. The 5 year median DPR for CFPS is at 15% as is the DPR for 2014 at 15%. So the DPR for CFPS is low. The DPR for EPS is expected to be low again in 2015.

The total return is low for the past 10 years, but good for the past 5 years. The 5 and 10 year total return is 14.08% and 3.87% per year. The portion of this return attributable to dividends is 1.82% and 1.40% per year. The portion of this return attributable to capital gain is 12.27% and 2.48% per year.

Outstanding shares have increased by 8.4% and 4.2% per year over the past 5 and 10 years. The shares have increased due to Share Issues, Stock Options and DRIP. The shares have decreased due to Buy Backs. Growth in Revenue goes from non-existent to moderate. Growth in EPS is non-existent. Growth in Cash Flow is non-existent. Because shares have been increasing, it is the per share values that are important.

Revenue is up by 6.8% and 5% per year over the past 5 and 10 years. Revenue per share is down by 1.5% and up by 0.8% per year over the past 5 and 10 years. In 2014 Revenue increased by 32%, but Revenue per Share was down by 9.9%. There is because shares increased by 46% in 2014. Most of this increase was due to the purchase of Shoppers Drug Mart. Revenue is expected to increase by around 6.7% in 2015. Shares at the end of the second quarter were down slightly and Revenue was up by around 7%.

EPS is down by 43% and 27.5% per year over the past 5 and 10 years. Looking at 5 year running averages, EPS growth looks better with EPS up by 5.5% and down by 2.7% per year over the past 5 and 10 years. The company is expected to do better in 2015 for EPS than for 2014. EPS is expected to be around $2.67 in 2015 and for the 12 month period to the end of the second quarter, EPS is $1.03.

Cash Flow per share is down by 10.7% and 7.65 per year over the past 5 and 10 years. Looking at 5 year running averages, growth is low with growth at 2.8% per year over the past 5 and 10 years. Cash Flow is expected to grow in 2015 by some 96%. If you compare the 12 month period to the end of 2014 and the 12 month period to the end of the second quarter, Cash Flow is up by 35.8%.

Return on Equity has been over 10% twice in the past 5 years and four times in the past 10 years. The ROE for 2014 was 0.4%, but 5 year median ROE was 9.8% The ROE for comprehensive income was even lower at 0.1%, with a 5 year median ROE of 9.7%. The year of 2014 was not a great earnings year for the company.

The debt ratios are ok. The Liquidity Ratio was 1.47 in 2014. The Debt Ratio was 1.63 in 2014. The Leverage and Debt/Equity Ratios were 2.63 and 1.63 for 2014. Not great, but passable.

This is the first of two parts. The second part will be posted on Friday, August 14, 2015 and will be available here. The first part talks about the stock and the second part talks about the stock price.

Loblaw Companies Limited, a subsidiary of George Weston Limited, is Canada's largest food retailer and a leading provider of drugstore, general merchandise and financial products and services. Loblaw offers Canada's strongest control (private) label program, including the unique President's Choice, no name and Joe Fresh brands. In addition, the Company makes available to consumers President's Choice financial services and offers the PC point loyalty program. Its web site is here Loblaw.

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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