Melcor Developments Inc.

Sound bite for Twitter and StockTwits is: Dividend Growth Real Estate. Generally, this stock seems relatively cheap. It is doing business in Alberta and Alberta has been having a hard time. I am keeping my shares. See my spreadsheet on Melcor Developments Inc.

I own this stock of Melcor Developments Inc. (TSX-MRD, OTC-MODVF). This was one of the stocks on Mike Higgs' list of good dividend growth stocks. So I looked into it and bought it. I bought this stock first in 2008 and then some more in 2009. It is a little followed real estate company from Western Canada.

This is an Alberta company and it hit a low in 2015. Currently The Long Term Debt/Market Cap Ratio is 1.28 which is high. This ratio has been too high since 2015. Other debt ratios are better. Leverage and Debt/Equity Ratios are good at 1.97 and 0.97. The Debt Ratio and Liquidity Ratios are very good at 2.03 and 3.49.

The other thing to point out is that the Comprehensive Income ROE is 3% against the Net Income ROE of 7.8%. The Net Income ROE is some 21% lower than the Comprehensive ROE. This can point to a quality issue for the Net Income. Here the difference is all due to currency exchange.

The dividends are moderate with the current dividend at 3.65%. The 5, 10 and historical median dividends are 3.09%, 305% and 2.77%. The dividend increases used to be moderate to good, but they are lower now. The 5, 10, 15, 20, 25 and 27 year growth in dividends are at 2.93%, 2.66%, 11.62%, 8.59%, 13.92% and 15.76%.

The reason for the lower current dividend growth is that dividends were cut by 20% in 2016. This was in line with lower EPS in 2016. However, in 2017 they raised the dividends again by some 8.3%. So far in 2018 there is no hint from the company of an increase in 2018.

However in March 2018 the company said that "With the dividend declared today, we are now in our 30th consecutive year of dividend payments. Since becoming a public company in 1968, we have paid dividends in all but three years."

They can afford their dividends, but the Dividend Payout Ratio is higher now than it has ever been. The Dividend Payout Ratio for 2017 was 45% with 5 year coverage of 30%. The DPR for CFPS is 37% with 5 year coverage of 38%.

Until recently this company was doing very well. I am holding on to my shares as I believe that it will do well again in the future. It is an Alberta company and Alberta has always had a boom, bust type of economy. The 5, 10, 15, 20, 25 and 27 year Total Return is at 3.55% 0.25%, 15.19%, 18.15%, 18.26% and 17.74% per year.

The portion of the total return attributable to capital loss in the last 5 and 10 years is at 0.58% and 2.59% per year. The portion of the total return attributable to capital gain in the past 15, 20, 25 and 27 years is at 9.93%, 11.61%, 11.10% and 11.06% per year. The portion of the total return attributable to dividends over the past 5, 10, 15, 20, 25 and 27 years is 4.13%, 2.84%, 5.26%, 6.53%, 7.16% and 6.68% per year.

I have made 6.94% per year with 2.58% from capital gains and 4.36% from dividends. Dividends have covered some 48.25% of the cost of my stocks. I am only making a return on original shares bought in 2008 of 2.99% as I paid more for then the shares are now worth. However, overall I am getting a yield of 4.79% if you consider all the shares I own. I bought more shares when the company hit the lows of $4.28 and $6.65.

The 5 year low, median and high median Price/Earnings per Share Ratios are 6.45, 7.70 and 8.95. The corresponding 10 year ratios are 5.38, 8.10 and 9.33. The corresponding historical P/E Ratios are 5.84, 7.21 and 8.42. The current P/E Ratio is 10.63 based on a stock price of $14.25 and 2018 EPS estimate of $1.34. This stock price testing suggests that the stock price is relatively expensive.

Since 2010, I have gotten Funds from Operations (FFO) values for this company. Using the last 12 month data for FFO of $1.77, I get a current Price/FFO Ratio of 8.05 based on a stock price $14.25. The 5 year low, median and high median P/FFO ratios are 7.90, 9.85 and 10.89. The 8 year corresponding ratios are 7.42, 8.72 and 9.85. This stock price testing suggests that the stock price is relatively reasonable and below the median.

I get a Graham Price of $30.04. The 10 year low, median and high median Price/Graham Price Ratios are 0.36, 0.55 and 0.62. The current P/GP Ratio is 0.47 based on a stock price of $14.25. This stock price testing suggests that the stock price is relatively reasonable and below the median.

I get a 10 year median Price/Book Value per Share Ratio of 0.70. The current P/B Ratio is 0.48 based on Book Value of $1,008M, Book Value per Share of $29.94 and a stock price of $14.25. The current P/B Ratio is some 32% below the 10 year median. This stock price testing suggests that the stock price is relatively cheap. Also, a stock is absolutely cheap when the P/B Ratio is below 1.00.

The historical median dividend yield is 2.77%. The current dividend yield is 3.65% based on dividends of $0.52 and a stock price of $14.25. The current dividend yield is some 32% above the historical dividend yield. This stock price testing suggests that the stock price is relatively cheap.

Generally speaking when a stock cuts a dividend, the current dividend is general below the historical one and I do not use this stock price testing. I guess this shows how cheap this stock is.

When I look at analysts' recommendations I find one Hold recommendation. This stock is not well covered. The 12 month target stock price estimate is $16.00. This implies a total return of 15.93% with 12.28% from capital gains and 3.65% from dividends based on a current stock price of $14.25.

The company reported on Nasdaq Global Newswire their 2017 results. A DR Contributor on Danvers Record says the company's Gross Margin Score is 22 where 1 is stable and 100 is unstable. Heidi Stubbs on Simply Wall Street says she likes this stock. Will Ashworth on Motley Fool likes this company but notes its problem of being based on Alberta. See what analysts have to say about this stock on Stockchase. It is not well covered because the company is small and based in Alberta.

Melcor Developments Ltd is a real estate development company with community development, property development, investment property, REIT and recreational property divisions. Its web site is here Melcor Developments Inc.

The last stock I wrote about was about was AltaGas Ltd (TSX-ALA, OTC-ATGFF)... learn more. The next stock I will write about will be BCE Inc. (TSX-BCE, NYSE-BCE)... learn more on Wednesday, March 28, 2018 around 5 pm. Tomorrow on my other blog I will write about Accounting.... learn more on Tuesday, March 27, 2018 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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