I do not own this stock of Linamar Corporation (TSX-LNR, OTC-LIMAF). I looked at this stock back in 2000 and it was not a stock I thought fit my investment philosophy. In 2008 I read an article that recommended this company as a dividend stock with good value. This stock used to be on the Investment reporter portfolio stock list as an average risk stock. However, it has now been taken off this list.
When I was updating my spreadsheet, I noticed there was a lot of insider buying. Net Insider Buying as a percentage of the market cap is 0.31%, where you would expect this percentage to be closer to 0.01%. This stock has delivered good returns to shareholders over a long period of time.
However, it is not a great dividend stock. They have declared dividends for the last 24 years and in that time, dividends have been increased on 9 times and they were decreased once. Although the one time it did decrease its dividend, it was back to the old amount in one year’s time. The dividend yield has often been under 1%.
The dividend yields are low with dividend growth currently averaging low. The current dividend yield is low (under 1%) at 0.60%. The 5 and 10 year and historical median dividend yields are also low at 0.71%, 0.88% and 1.20%. Dividends are growth is low (under 8%) at 3.71% per year over the past 5 years. This year the dividends were cut by 50%. This company has few, but large dividend increases.
The Dividend Payout Ratios (DPR) are good. The DPR for 2019 for EPS is low at just 7.3% with 5 year coverage at 6%. The DPR for CFPS for 2019 is 3.5% with 5 year coverage at 3%. The DPR for Free Cash Flow for 2019 is 5.1% with 5 year coverage at 8%.
Debt Ratios are good. The Long Term Debt/Market Cap Ratio for 2019 is good at 0.58. The Liquidity Ratio for 2019 is good at 1.85 as is the Debt Ratio at 2.14 for 2019. However, the interim Liquidity Ratio for the second quarter is low at just 1.24. The Leverage and Debt/Equity Ratios for 2019 are 1.88 and 0.88.
The Total Return per year is shown below for years of 5 to 31 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. |
|---|---|---|---|---|---|
| 2014 | 5 | 3.71% | -6.35% | -7.09% | 0.74% |
| 2009 | 10 | 14.87% | 14.99% | 13.43% | 1.56% |
| 2004 | 15 | 7.60% | 9.24% | 8.04% | 1.19% |
| 1999 | 20 | 5.65% | 7.87% | 6.79% | 1.08% |
| 1994 | 25 | 7.06% | 9.33% | 8.45% | 0.89% |
| 1989 | 30 | 17.62% | 14.86% | 2.76% | |
| 1988 | 31 | 15.70% | 13.54% | 2.16% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 5.60, 7.37 and 9.33. The corresponding 10 year ratios are 6.55, 8.93 and 11.44. The corresponding historical ratios are 8.34, 11.60 and 15.56. The current P/E Ratio is 14.48 based on a stock price of $40.10 and EPS estimate for 2020 of $2.77. This stock price testing suggests that the stock price is relatively expensive.
I get a Graham Price of $62.45. The 10 year low, median, and high median Price/Graham Price Ratios are 0.57, 0.77, and 0.96. The current P/GP Ratio is 0.64 based on a stock price of $40.10. 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 1.41. The current P/B Ratio is 0.64 based on a stock price of $41.10, Book Value of $4,083M and a Book Value per Share of $62.58. The current ratio is 54% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
I get a 10 year median Price/Cash Flow per Share Ratio of 5.40. The current P/CF Ratio is 2.69 based on a stock price of $40.10, Cash Flow per Share estimate for 2020 of 14.90 and Cash Flow of $972M. The current ratio is 50% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
I get an historical median dividend yield of 1.20%. The current dividend yield is 0.60% based on a stock price of $40.10 and dividends of $0.24. The current dividend yield is 50% 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 0.88%. The current dividend yield is 0.60% based on a stock price of $40.10 and dividends of $0.24. The current dividend yield is 32% below the historical dividend yield. This stock price testing suggests that the stock price is relatively expensive.
The 10 year median Price/Sales (Revenue) Ratio is 0.57. The current P/S Ratio is 0.47 based on Revenue estimate for 2020 of $5,625M, Revenue per Share of $86.22 and a stock price of $40.10. The current ratio is 18% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
Results of stock price testing is that the stock price is probably reasonable. The problem with the dividend yield tests is that the company has recently reduced dividends. If they had not, the results of testing against the historical dividend yield would be reasonable and at the median and for the 10 year dividend yield test the dividend yield would point to a cheap price. The P/S Ratio testing is showing the stock price as reasonable and below the median.
Other testing is pointing to a reasonable to cheap stock price. The P/E Ratio test is not, but the 2020 EPS is expected to be low at $2.77. The EPS is expected to recover in 2021 at $5.05. In 2021, the P/E Ratio is 7.94 and this would give us a stock price that is relatively reasonable and below the median.
Is it a good company at a reasonable price? The stock price would seem to be reasonable. I think that his is a good company for the long term. It is better for people building a portfolio rather than for people like me who live on their dividends. This is because of the very low dividend rate.
When I look at analysts’ recommendations, I find Strong Buy (1), Buy (2) and Hold (3). The consensus is a Buy. The 12 month consensus stock price is $48.67. This implies a total return of $21.97% with 0.60% from dividend and 21.37% from capital gains.
Analysts on Stock Chase like this company. Some have recently made it their top pick. Cindy Dye on Motley Fool picks this stock as her top stock for August 2020. A writer on Simply Wall Street thinks the market retains some optimism around long term earnings stability. A writer on Simply Wall Street is concerned about the company’s short term debt but find other debt ratios good. Jacqueline Thorpe reporting on Automotive New Canada talks about the CEO saying Linamar is past the worst after the coronavirus pandemic.
Linamar Corp makes powertrains and drivelines for vehicle and power generation markets and operates under two business segments: Transportation and Industrial. The three largest customers account for nearly half of total revenue. Its web site is here Linamar Corporation.
The last stock I wrote about was about was K-Bro Linen Inc (TSX-KBL, OTC-KBRLF) ... learn more. The next stock I will write about will Teck Resources Ltd (TSX-TECK.B, NYSE-TECK) ... learn more on Monday, October 5, 2020 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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