I do not own this stock of North West Company (TSX-NWC, OTC-NWTUF). 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 Income Trust being currently good buys with very good yields. This stock changed from an income trust to a corporation in 2011.
When I was updating my spreadsheet, I noticed that this stock’s price is higher now that before the March crash. The stock price is the highest it has ever been. It is up 121.8% since the March low. It is up 32.2% since prior to March crash. It has a financial year ending in January each year so the last year’s financial statements are for January 31, 2020. This is an interesting stock that has provided a decent return for shareholders over the longer term.
The dividend yields are moderate with dividend growth low. The current dividend yield is moderate (2% to 4% ranges) at 4.16%. The 5, 10 and historical median dividend yields are moderate at 4.36%, 4.51% and 4.78%. The dividend growth is current low with the growth over the past 5 years are 2.62% per year. The last increase was in 2020 and it was for 9.09%, which is a moderate rate. The company increased the dividends when it became an income trust and then decreased them when it became a corporation again. Income trust going to corporations have had a hard time getting the DPR for EPS under control.
The Dividend Payout Ratios (DPR) are fine. The DPR for EPS for 2020 is 79%, with 5 year coverage at 81%. The DPR for CFPR for 2020 is 31% with 5 year coverage at 35%. The DPR for Free Cash Flow using values from Morningstar is 121% with 5 year coverage 128%. None of the sites I looked at agree on FCF, but they seem to agree that the DPR is too high. However, they also seem to agree that the coverage will be good for 2021.
Debt Ratios are fine. The Long Term Debt/Market Cap Ratio for 2020 is 0.30 and is good. The Liquidity Ratio for 2020 is 2.06. The current one is lower at 1.37, but with cash flow after dividends it is 1.89. The current Liquidity Ratio is low because of current long term debt due. The Debt Ratio for 2020 is 1.54 with the current one being 1.64. These ratios are good. The Leverage and Debt/Equity Ratios 2.94 and 1.91 are fine.
The Total Return per year is shown below for years of 5 to 29 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. (I have more years of data on dividends than stock price.)
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2014 | 5 | 2.62% | 5.58% | 0.85% | 4.74% |
| 2009 | 10 | 0.00% | 9.19% | 3.70% | 5.49% |
| 2004 | 15 | 5.40% | 15.15% | 7.19% | 7.96% |
| 1999 | 20 | 6.15% | 20.19% | 9.75% | 10.44% |
| 1994 | 25 | 9.66% | 16.88% | 8.83% | 8.05% |
| 1990 | 29 | 8.98% | 17.75% | 9.67% | 8.08% |
| 1988 | 31 | 8.68% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 16.43, 18.12 and 20.66. The corresponding 10 year ratios are 15.94, 18.09 and 20.12. The corresponding historical ratios are 9.98, 12.97 and 15.36. The current P/E Ratio is 13.11 based on a stock price of $34.60 and 2021 EPS estimate of $2.64. This stock price testing suggests that the stock price is relatively cheap.
I get a Graham Price of $23.74. The 10 year low, median, and high median Price/Graham Price Ratios are 1.50, 1.71 and 1.87. The current P/GP Ratio is 1.46 based on a stock price of $34.60. This stock price testing suggests that the stock price is relatively cheap.
I get a 10 year median Price/Book Value per Share Ratio of 3.58. The current P/B Ratio is 3.63 based on a stock price of $34.60, Book Value of $462.4M and Book Value per Share of $9.48. The current P/B Ratio is 1.8% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10 year median Price/Cash Flow per Share Ratio of 9.94. The current P/CF Ratio is 7.65 based on Cash Flow per Share estimate for 2021 of $4.52, Cash Flow of $220.4M and a stock price of $34.60. The current ratio is 23% 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 4.78%. The current dividend yield is 4.16% based on dividends of $1.44 and a stock price of $34.60. The current dividend is 13% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10 year median dividend yield of 4.51%. The current dividend yield is 4.16% based on dividends of $1.44 and a stock price of $34.60. The current dividend is 8% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above the median.
The 10 year median Price/Sales (Revenue) Ratio is 71. The current P/S Ratio is 0.72 based on Revenue estimate for 2021 of $2,347M, Revenue per Share of $48.14 and a stock price of $34.60. This stock price testing suggests that the stock price is relatively reasonable but at the median.
Results of stock price testing is that the stock price is probably reasonable but at or above the median. Both dividend yield tests show the stock price as reasonable but above the median. However, this test could be considered to be compromised by the fast that this company spent time as an income trust. The P/S Ratio test show the stock price reasonable and at the median. Others, expect for the P/B Ratio test, show the stock price as cheap.
Is it a good company at a reasonable price? The company probably has a reasonable stock price. This is an interesting company because of the market it serves. However, it is a dividend growth company and have provided solid returns for shareholders over the longer term.
When I look at analysts’ recommendations, I find Buy (1) and Hold (4) recommendations. The consensus would be a Hold. The 12 month stock price is $36.00. This implies a total return of 8.21% with 4.16% from dividends and 4.05% from capital gains.
A couple of analysts on Stock Chase talk about how they have an monopoly in the markets they serve . Daniel Da Costa on Motely Fool says this is a top defensive stock. A writer on Simply Wall Street says that even after the last jump on the stock value, the P/E Ratio of 15.8 is lower than the market’s 16.00 P/E Ratio. A writer on Simply Wall Street says that although the company has a high ROE, its earnings growth is disappointing. Allan Tong on Stock Chase names this stock as one of the 5 best dividend stocks for Canadians.
The North West Co Inc is a Canada-based company that is principally engaged in retail business in underserved rural communities and urban neighborhoods. The company operates business in Northern Canada, Western Canada, rural Alaska, the South Pacific islands, and the Caribbean, with around two thirds of the company's total revenue coming from the Canadian market. Its web site is here North West Company.
The last stock I wrote about was about was Equitable Group Inc (TSX-EQB, OTC-EQGPF) ... learn more. The next stock I will write about will be Pason Systems Inc (TSX-PSI, OTC-PSYTF) ... learn more on Wednesday, October 21, 2020 around 5 pm. Tomorrow on my other blog I will write about Four Dividend Paying Tech Stocks.... learn more on Tuesday, October 20, 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.
See my website for stocks followed and investment notes. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.
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