I do not own this stock of Chemtrade Logistics Income Fund (TSX-CHE.UN, OTC-CGIFF). I decided to investigate this stock after reading an article in the G&M in February 2012 about investing in small cap stocks that pay dividends. This was one of the stocks mentioned that I had never heard of before.
When I was updating my spreadsheet, I noticed is that this company is an old income trust and it is still having trouble covering their dividends. Also, they had an earnings loss because Cost of Sales and Services and Selling and Administrative Expenses were more than their revenue. Both these costs are higher than last year and grow faster than the Revenue. Buried in these costs is a $90,000 impairment charge.
There is also a lot of insider buying. The insider buying is at 0.09% of market cap which is high. You would expect it to be lower or negative. Insiders are buying at around $10.30. I follow the CEO, CFO, one officer, one director and the Chairman. All the people I am following on this stock bought more shares in the past year.
The current dividend yield is very high currently at 11.82%. This is an old income trust and these companies always had high dividend yields, but it would have been expected to come down a lot by now. The yields did at first, but they are high now due to problems that the company is having. The 5, 10 and historical yields are high but lower than the current yield. These median dividend yields are 6.48%, 7.36% and 8.14%.
The company did raise dividends in the past, but lowered then when the tax rules on income trust companies were changed in 2006. The dividends have been flat ever since. Analysts do not expect the dividends to be cut anymore, but they also do not see any increase in the near future.
The Dividend Payout Ratios are too high. The DPR for EPS is currently not calculable because the EPS is negative. But any time in the past when I could calculate it, it was too high. They have been paying out more than they earn. This was fine for income trusts because they could pay out high rates, but it is not fine for corporations. Old income trust companies should be getting their DPR for EPS under control.
The DPR for CFPS is also too high. The DPR for CFPS for 2018 is 57% with 5 year coverage at 42%. I prefer this to be 40% or less. The DPR for CFPS is expected to rise this year to 61% and then fall to 55% in 2020.
For Debt Ratios, the low Liquidity Ratio is a vulnerability. The long Term Debt/Market Cap Ratio is 0.71. The Liquidity Ratio at 0.82 is low and this means that current assets can not cover current labilities. If you add in cash flow after dividends it is still low, but over 1.00 at just 1.11. The Debt Ratio is fine at 1.55. The Leverage and Debt/Equity Ratios are fine at 2.83 and 1.83 respectively.
The Total Return per year is shown below for years of 5 to 17 to the end of 2018. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
In the past when the total return has been good, it was because of dividends.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2013 | 5 | 0.00% | -3.89% | -11.72% | 7.83% |
| 2008 | 10 | 0.00% | 14.85% | 1.90% | 12.95% |
| 2003 | 15 | -0.63% | 5.51% | -3.56% | 9.07% |
| 2001 | 17 | 5.33% | 13.20% | -0.67% | 13.87% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are all negative at 7.09, 10.32 and 13.55 because of recent earning losses. The corresponding 10 year ratios are positive at 8.05, 10.01 and 11.85. The corresponding historical ratios are also positive at 11.80, 13.54 and 14.88. The current P/E Ratio is negative at 13.01 based on 2019 EPS loss of $0.78 and a stock price of $10.15. The P/E Ratio for 2020 is positive at 78.08 based on EPS of $0.13 and a stock price of $10.15. This all suggests that that the stock price is relatively expensive.
I get a Graham Price of $5.16. The 10 year low, median, and high median Price/Graham Price Ratios are 1.35, 1.52 and 1.68. The current P/GP Ratio is 1.97 based on a stock price of $10.15. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median Price/Book Value per Share Ratio of 1.57. The current P/B Ratio is 1.12 based on Book Value of $842M, Book Value per Share of $9.10 and a stock price of $10.15. The current ratio is low and is lower than the 10 year median by 29%. This stock price testing suggests that the stock price is relatively cheap.
I get an historical median dividend yield of 8.14%. The current dividend yield is 11.82% based on dividends of $1.20 and a stock price of $10.15. The current dividend is some 45% above the historical median yield. This stock price testing suggests that the stock price is relatively cheap.
The 10 year median Price/Sales (Revenue) Ratio is 0.87. The current P/S Ratio is 0.60 based on 2019 Revenue estimate of $1,572M, Revenue per Share of $16.98 and a stock price of $10.15. The current ratio is 31% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
Results of stock price testing is that the stock price is probably cheap. The best test is as usual the P/S Ratio which is showing as cheap. The P/B Ratio is also a good one and this is showing the stock price as cheap. Also, a P/B Ratio of 1.12 is a very low one. Generally, the dividend yield test for old income trusts tend not to be good tests.
Is it a good company at a reasonable price? This company has serious problems and therefore would be a risky investment. Some think that it will recover and be a good investment for patient investors. This maybe true, but it is a risk.
When I look at analysts’ recommendations, I find Buy (4) and Hold (5). The consensus would be a Buy. The 12 month stock price is $11.83. This implies a total return of 28.37% with 16.55% from capital gains and 11.82% from dividends.
See what analysts are saying on Stock Chase. Here some are worried about the dividend and the effects of a recession on this company. Ryan Vanzo on Motley Fool thinks that this company will provide a great permanent income stream. A Writer on Simply Wall Street likes the income stream and growth in income, but says it is of higher risk. The company reports on their second quarter of 2019 on Business Newswire. The WS News Team on WS News Publisher have a positive slant on this stock.
Chemtrade Logistics Income Fund provides industrial chemicals and services to customers in North America and around the world. The company organized into four main operating segments: Sulphur Products and Performance Chemicals (SPPC), Water Solutions and Specialty Chemicals (WSSC), Electrochemicals, and Corporate. Its web site is here Chemtrade Logistics Income Fund.
The last stock I wrote about was about was Badger Daylighting Ltd (TSX-BAD, OTC-BADFF) ... learn more. The next stock I will write about will be Alimentation Couche-Tard Inc (TSX-ATD.B, OTC-ANCUF) ... learn more on Wednesday, August 28, 2019 around 5 pm. Tomorrow on my other blog I will write about TC Energy.... learn more on Tuesday, August 27, 2019 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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