I own this stock of Ag Growth International (TSX-AFN, OTC-AGGZF). I wanted to review all the income trust stocks touted in the Money Show of 2009. There was a lot of talk at this show about some of the Unit Trust being currently good buys with very good yields. Ag Growth’s median yield in 2009 was 7.9%. It was on the Canadian Dividend Aristocrats and this is why I first investigated this company.
When I was updating my spreadsheet, I noticed it never got its Dividend Payout Ratios for EPS under control since changing to a corporation in 2009. It used to be an income trust and income trust could pay out more than the EPS, but corporations cannot. It recently cut its dividends by 75%. So it is finally going to get their DPRs in order.
When I was first updating this spreadsheet on last weekend, I got a stock price of $24.08. Now the stock price is 30.43% a rise of over 26%. The dividend yield has gone from 2.47% to 1.97% over this same period. Also, this stock price was in the $20 ranges just two days ago.
The dividend yields are currently low with dividend growth non-existent. The current dividend yield is moderate (below 2%) at 1.97%. This is after the recent dividend cut of 75%. This used to be an income trust company and income trust have higher yields than corporations. The 5 median dividend yield is moderate at 4.78%. The 10 year and historical median dividend yield are in the good range (5% to 6% ranges) at 5.22% and 6.13%. There has been not dividend increases since 2011 and recently they have cut the dividend.
The Dividend Payout Ratios (DPR) will improve. The DPR for EPS has been too high since the company became a corporation in 2009. The DPR for EPS for 2019 was 312% with 5 year coverage at 301%. The DPR for EPS is not expected to be under 100% until next year when analysts think it will be at 30%. The DPR for CFPS was also too high and in 2019 it was 62% with 5 year coverage at 56%. The Free Cash Flow for 2019 is negative, so DPR for FCF cannot be calculated. Analysts expect the DPR for FCF to be 40% this year.
Debt Ratios are fine but some could be improved. The Long Term Debt/Market Cap Ratio for 2019 is fine at 0.45. The Liquidity Ratio is good at 1.72 for 2019 and 5 year median at 1.58. The Debt Ratio for 2019 is a little low at 1.34 with 5 year median at 1.40. The Leverage and Debt/Equity Ratios are too high in 2019 at 3.92 and 2.92. The 5 year median values are fine at 2.65 and 2.16.
The Total Return per year is shown below for years of 5 to 16 to the end of 2019. 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.
|From||Years||Div. Gth||Tot Ret||Cap Gain||Div.|
The 5 year low, median, and high median Price/Earnings per Share Ratios are 22.79, 31.76 and 41.02. The corresponding 10 year ratios are 19.76, 25.30 and 29.35. The corresponding historical ratios are 14.42, 21.36 and 26.57. The current P/E Ratio is 40.04 based on a stock price of $30.43 and a 2020 EPS estimate of $0.76. This stock price testing suggests that the stock price is relatively expensive.
I get a Graham Price of $19.48. The 10 year low, median, and high median Price/Graham Price Ratios are 1.43, 1.88 and 2.16. The current P/GP Ratio is 1.56 based on a stock price of $30.43. 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 2.59. The current P/B Ratio is 1.37 based on a stock price of $30.43, Book Value of $414M and Book Value per Share of $22.18. The current P/B Ratio is 47% below the 10 year ratio. This stock price testing suggests that the stock price is relatively cheap.
I get an historical median dividend yield of 6.13%. The current dividend yield is 1.97% based on dividends of $0.60 and a stock price of $30.43. The current dividend yield is 68% below the historical dividend yield. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median dividend yield of 5.22%. The current dividend yield is 1.97% based on dividends of $0.60 and a stock price of $30.43. The current dividend yield is 62% below the 10 year dividend yield. This stock price testing suggests that the stock price is relatively expensive.
The 10 year median Price/Sales (Revenue) Ratio is 1.36. The current P/S Ratio is 0.59 based on 2020 Revenue estimate of $958M, Revenue per Share of $51.32 and a stock price of $30.43. The current ratio is 56% 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. It is much easier to judge the stock price when all the testing shows the same thing. However, that is not always the case. That the price is relatively expensive by the dividend yield test is not confirmed by the P/S Ratio testing which says the stock price is cheap. The P/B Ratio test is a good one and shows the stock price as relatively cheap.
There are problems with the dividend yield tests. Not only did this stock used to be an income trust where the dividend yields were much higher, and the company has just recently cut the dividends significantly. There are problems with the P/E Ratio tests. The P/E Ratios have recently skyrocketed because of recent lower EPS. The P/GP Ratio considers the book value as well as the EPS and therefore suffers problems that the P/E Ratio testing suffers from.
Is it a good company at a reasonable price? I bought this stock for diversification. We are in a bear market and this company is suffering because of the bear market. You never know ahead of time what stocks will suffer in any bear market. Bear markets do not last forever and I see no problem in this company recovering. Stock price always recover before P/E Ratios do because the market is looking towards the future. I will retain this stock and I think the stock price is reasonable, in fact I believe it is still cheap.
When I look at analysts’ recommendations, I find Strong Buy (1), Buy (5), and Hold (1). The consensus would be a Buy. The 12 month stock price would be $36.07. This would imply a total return of 20.51 with 18.53% from capital gains and 1.97% from dividends.
Ryan Bushell on Stock Chase recently said do not buy because business around the world has stopped. Ambrose O'Callaghan on Motley Fool says this company has solid fundamentals and favourable P/B Ratio. A writer on Simply Wall Street looks at ownership. A writer on Simply Wall Street says that the company’s ROCE is average for its industry, but mediocre in absolute terms. The company reports their first quarterly results on Newswire.
Ag Growth International Inc manufactures portable and stationary grain handling, storage and conditioning equipment, including augers, belt conveyors, grain storage bins, grain handling accessories, grain aeration equipment and grain drying systems. It has manufacturing facilities in Canada, the United States, Italy, Brazil, and the United Kingdom. Western Canada region generates most of the company's revenue. Its web site is here Ag Growth International.
The last stock I wrote about was about was Power Corp of Canada (TSX-POW, OTC-PWCDF) ... learn more. The next stock I will write about will be Kirkland Lake Gold (TSX-KL, NYSE-KL) ... learn more on Monday, May 11, 2020 around 5 pm.
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