Morneau Shepell Inc.

Sound bite for Twitter and StockTwits is: Dividend Growth Financial. The results of my stock price testing seem to show that the current stock price is relatively expensive. Why you invest in financial stocks is because financial companies tend to make more money for shareholders than other types of companies. See my spreadsheet on Morneau Shepell Inc.

I do not own this stock of Morneau Shepell Inc. (TSX-MSI, OTC-MSIXF). Every once in a while I go through the stocks that my brokerage, TD Waterhouse, is recommending to find promising new stocks. In February 2013 this stock was rated a buy by TD Waterhouse. It was under Diversified Financials.

I note that there is lots of insider selling with the rate at 0.16% of market cap over the past year. This is relatively high. The last selling was in March of 2017. The problem with insider selling is that it may occur unrelatedly to how insider feels about where the company is going.

The investors have done better in capital gains than in dividend growth. The total return over the past 5 and 10 years to the end of 2016 is 18.97% and 12.86% per year with 12.95% and 6.31% per year in capital gain and 6.02% and 6.56% per year in dividends. The total return to date is 15.70% and 8.65% per year over the past 5 and 10 years. The portion attributable to capital is 10.58% and 3.67% per year and to dividends 5.12% and 4.98% per year over the past 5 and 10 years. (Note that long term total return over 8% is good.)

The reason that this has been no dividend growth recently is because this stock used to be an income trust stock. When it became a corporation, it reduced its dividends by 17%. It should probably have reduced it more because they were paying out too much of the EPS from 2011. It is only in 2016 that the Dividend Payout Ratio is lower than 100% and it was then 85%. The 5 year payout is 162%. I am hoping that this will again become a dividend growth stock now that the DPR is lower. Some analysts do expect dividend growth over the next couple of years.

The dividend yield has been moderate (2 to 3%) to good (above 4%). The current dividend is in the moderate range at 3.71%. The 5 year median dividend yield at 4.95% is in the good range. Going forward, I would think that once they start increasing the dividends again this stock will have moderate dividends and moderate dividend increases (8% to 15% range).

The positive is the good debt ratios. The Liquidity Ratio for 2016 was 1.66 with a 5 year median of 1.83. The Debt Ratio for 2016 was 1.88 with a 5 year median 1.87. For these ratios ones of 1.50 or better is best and the company consistently has good debt ratios.

The Leverage and Debt/Equity Ratios for 2016 are 2.14 and 1.14 with 5 year median of 1.92 and 0.92. These are rather good for a Financial Services company. For these ratios lower is better.

A negative for this stock is the rather low Return on Equity (ROE). The ROE has never been higher than 7.9% since the stock opened on the TSX in 2005. The ROE for 2016 was 7.2% with a 5 year median of 6.1%. The ROE on comprehensive income is a bit better with the one for 2016 at 7.3% and a 5 year median of 6.6%. (I like companies where the ROE is at least 10% or mostly at or above 10%.)

The 5 year low, median and high median Price/Earnings per Share Ratios are 27.88, 34.66 and 27.88. The 10 year corresponding ratios are 26.14, 32.79 and 36.07. The current P/E Ratio is 23.08 based on a stock price of $21.00 and 2017 EPS estimate of $0.78. This stock price testing suggests that the stock price is relatively cheap. However, I think that these P/E Ratios are high ones for a Financial Services stock.

I get a Graham price of $11.81. The 10 year low, median and high median Price/Graham Price Ratios are 1.36, 1.50 and 1.80. The current P/GP Ratio is 1.78. This stock price testing suggests that the stock price is reasonable but above the median.

I get a 10 year Price/Book Value per Share Ratio of 1.71. The current P/B Ratio is 3.08 a value some 80% higher. The current P/B Ratio is based on BV of $362.87M, BVPS of $6.82 and a stock price of $21.00. This stock price testing suggests that the stock price is relatively expensive.

I get an adjusted historical median dividend yield of 5.84%. The current dividend yield is 3.71%. The current dividend yield is based on dividends of $0.78 and a stock price of $21.00. The 5 year median dividend yield is 4.95%. The historical and 5 year median dividend yields are higher than the current dividend yield by 46% and 24% respectively. This stock price testing suggests that the stock price is relatively expensive.

I looked at the 5 year median and an adjusted historical dividend yield as this stock used to be an income trust. Income trust companies had higher dividend yield than corporations. This company which is now a corporation will never again have the high dividend yields it did as an income trust. I adjusted the historical yields for the decrease in dividends that occurred when this company became a corporation.

I get a 10 year median P/S Ratio of 1.41. The current P/S Ratio is 1.77 based on 2017 Revenue estimate of $632M, Revenue per Share estimate of $11.87 and stock price of $21.00. The current P/S Ratio is some 25% above the 10 year median P/S Ratio. This stock price testing suggests that the stock price is relatively expensive.

When I look at analysts' recommendations, I find Buy and Hold recommendations. Most are a Buy recommendation and the consensus is a Buy recommendation. The 12 month stock price is $22.90. This implies a total return of 12.76% with 3.71% from dividends and 9.05% from capital gains based on a stock price of $21.00. (Note that this total return excludes any commission you may pay to buy this stock.)

JCTY Staff Writer says on JCTY News that the Piotroski F-Score on this stock is 8 which indicates a strong financial firm. Ryan Goldsman on Motley Fool thinks this stock is boring and will not produce high future returns. See what analysts say about this company on Stock Chase. They mostly like it.

Morneau Shepell Inc. provides human resource consulting and outsourcing services. The firm delivers solutions to assist employers in managing the financial security, health and productivity of their employees. The company has business in Canada and US. Its web site is here Morneau Shepell Inc.

The last stock I wrote about was about was Empire Company Ltd (TSX-EMP.A, OTC- EMLAF)... learn more. The next stock I will write about will Inter Pipeline Ltd (TSX-IPL, OTC-IPPLF)... learn more on Wednesday, July 12, 2017 around 5 pm. Tomorrow on my other blog I will write about New Flyer Industries Inc. ....learn more on Tuesday, July 11, 2017 around 5 pm.

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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