Magna International Inc.

Sound bite for Twitter and StockTwits is: Dividend Growth Consumer. The stock price is probably reasonable and around the median. Outstanding shares have been dropping so look for real growth in Net Income not EPS. Dividends are well covered. See my spreadsheet on Magna International Inc.

I do not own this stock of Magna International Inc. (TSX-MG, NYSE-MGA), but I used to. I held this company between September 2002 and September 2006 and earned 5% return per year including dividends. When I bought this stock in 2002, I felt I was paying a good price for it. There were some rumors that it might be bought out in 2006, so I sold.

The dividends are low and the dividend growth is moderate. The current dividend is 1.92% with 5, 10 and historical median yields at 1.86%, 1.82% and 1.77%. The dividend growth over the past 5 and 10 years in US$ is 14.9% and 10.2% per year. Dividends are paid in US$.

This company can afford their dividends. The Dividend Payout Ratio for 2016 is 19% US$ with 5 year cover at 18% US$. The DPR for CFPS is 11.5% US$ for 2016 and 5 year coverage at 11.6% US$. The values are not much different in CDN$, but dividends are paid in US$ and reporting is in US$.

For Canadians, the long term total return is rather interesting. The 5, 10, 15, 20 and 25 year total returns are 31.04%, 11.11%, 7.13%, 7.31% and 15.25% per year. Here the total per year returns is lowest for investing in this stock for 15 and 20 years. I would consider good long term (like 15, 20 or 25 years) at 8% per year to be good. Note total return is dividends plus stock price gains or capital gains. The Canadian returns are affected by the currency exchange rates.

In US$ the long term return for 5, 10, 15, 20 and 25 years is different. These returns are 24.19%, 9.62%, 8.66%, 8.29% and 7.07% per year. As with the returns for Canadians, the best is for the past 5 years. Note that for the 25 year return it is much lower than for Canadians.

The outstanding shares have declined by 3.91% and 1.39% per year over the past 5 and 10 years. To see real growth you have to look at things like Revenue, not Revenue per Share and Net Income not EPS. For example, the EPS is up by 19.70% and 15.75% per year US$ over the past 5 and 10 years. Net Income is up by 15.30% and 14.66% per year US$ over the past 5 and 10 years. Earnings growth is not as good as it appears using EPS.

Also earnings growth is not as good as it might appear because the Comprehensive Income ROE is lower than the Net Income ROE. The Net Income ROE for 2016 is 21.2% US$ and 5 year median is 21.2% US$. The Comprehensive Income ROE for 2016 is 20.00% with 5 year median of 14.7%. This suggests that the earnings may not be of good quality.

The 5 year low, median and high median Price/Earnings per Share Ratios are 7.04, 8.53 and 10.93. The 10 year ratios are 7.34, 9.71 and 12.51. The historical ratios are 8.65, 12.38 and 13.39. The current P/E Ratio is 9.70 based on a stock price of $72.11 CDN$ and 2017 EPS estimate of $7.50. This stock price testing suggests the stock price is relatively reasonable and around the median. (You will get a similar result in US$ testing.)

I get a Graham Price of $79.95. The 10 year low, median and high median Price/Graham Price Ratios are 0.68, 0.87 and 1.04. The current P/GP Ratio is 0.90 based on a stock price of $72.11. This stock price testing suggests that the stock price is relatively reasonable and just above the median.

I get a 10 year median Price/Book Value per Share of 1.25 US$. The current P/B Ratio is 1.89 US$ based on Book Value of $10.999M US$, Book Value per Share of $30.24 US$ and a stock price $57.01 US$. The current P/B Ratio is some 50% above the 10 year median. This stock price testing suggests that the stock price is relatively expensive. (You will get a similar result in CDN$ testing.)

I get a Historical Median Yield 1.77% US$. The current Dividend Yield is 1.93% based on dividends of $1.10 US$ and a stock price of $57.01 US$. The current dividend yield is some 9% higher than the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable and below the median. (You will get a similar result in CDN$ testing.)

I get 10 year median Price/Sales (Revenue) Ratio of 0.39 US$. The current P/S Ratio is 0.54 US$ based on 2017 Revenue estimate of $38,682M US$, Revenue per Share of $106.34 US$ and a stock price of $57.01 US$. The current P/S Ratio is some 39% higher than the 10 year ratios. This stock price testing suggests that the stock price is relatively expensive. (You will get a similar result in CDN$ testing.)

When I look at analysts' recommendations, I find Strong Buy (2), Buy (8), Hold (4) and Underperform (1). The consensus would be a Buy. The 12 month stock price is $62.12 US$ or $78.53 CDN$. This implies a total return of 10.83% with 8.90% from capital gains and 1.93% from dividends.

Danielle Lockwood on Street Observer discusses MG's P/E Ratio. Ambrose O'Callaghan on Motley Fool talks about whether nor not shareholders should worry about NAFTA. See what analysts are saying about this stock on Stock Chase. There are mixed views on effect of NAFTA.

Magna International is the most diversified global automotive supplier. They design, develop and manufacture technologically advanced automotive systems, assemblies, modules and components, and engineer and assemble complete vehicles, primarily for sale to original equipment manufacturers ("OEMs") of cars and light trucks. Their capabilities include the design, engineering, testing and manufacture of automotive interior systems; seating systems; closure systems; body and chassis systems; vision systems; electronic systems; exterior systems; powertrain systems; roof systems; hybrid and electric vehicles/systems; as well as complete vehicle engineering and assembly. Its web site is here Magna International Inc.

The last stock I wrote about was about was Methanex Corp. (TSX-MX, NASDAQ-MEOH)... learn more. The next stock I will write about will be Bird Construction Inc. (TSX-BDT, OTC- BIRDF)... learn more on Friday, December 29, 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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