I do not own this stock of Dollarama Inc (TSX-DOL, OTC-DLMAF). I belong to an investment club and this was a stock I volunteered to look at. I had, of course, heard of this stock before and people have mentioned that it is doing very well for shareholders.
When I was updating my spreadsheet, I noticed this with this year’s reporting, the book value is positive. I personally do not like to have stocks with a negative book value. The Financial year ends at February 1 each year. So, I am looking the financials for February 1, 2020.
The dividend yields are low and dividend growth was moderate but is now stalled. The current dividend yield is low (less than 2%) at just 0.38. The 5 and 8 year dividend yields are also low at 0.41% and 0.45%. This historical would be the same as the 8 year median yields because dividends have only been paid for 8 years. The dividend growth has been moderate (8% to 14% ranges) over the past 8 years with dividends grow at 11.24% per year over the past 5 years. Dividends were not increased this year and expected increase in 2022 is 7.95%.
The Dividend Payout Ratios (DPR) are very good. The DPR for EPS for 2020 are low at 10% with 5 year coverage at 12%. The DPR or CFPS for 2020 is 7% with 5 year coverage at 9%. The DPR for Free Cash Flow for 2020 is 9% with 5 year coverage at 12%.
Debt Ratios need much improvement. The Long Term Debt/Market Cap ratio for 2020 is 0.09 and is low. The Liquidity Ratio for 2019 is very low at 0.70. If you add in cash flow after dividends it is 1.32 and I would prefer it to be 1.50. The Debt Ratio for 2020 is 0.98. This means that assets cannot cover liabilities. However, for the first time in 4 years, the Debt Ratio for the second quarter is positive at 1.03. This is very low and I prefer this to be 1.50. The Leverage and Debt/Equity Ratios for 2020 are negative. These ratios for 2021 are extremely high at 33.88 and 32.88. I prefer them to be under 3.00 and under 2.00.
The Total Return per year is shown below for years of 5 to 11 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 | 11.24% | 18.25% | 17.65% | 0.60% |
| 2009 | 10 | 14.40% | 29.00% | 28.18% | 0.81% |
| 2008 | 11 | 27.94% | 27.23% | 0.71% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 19.43, 25.31 and 31.11. The corresponding 10 year ratios are 18.55, 23.36 and 27.87. The corresponding historical ratios are 18.51, 21.09 and 27.61. The current P/E Ratio is 26.83 based on a stock price of $45.88 and EPS estimate for 2021 of $1.71. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a Graham Price of $3.77. The 10 year low, median, and high median Price/Graham Price Ratios are 3.10, 3.91 and 4.72. The current P/GP Ratio is 12.17 based on a stock price of $45.88. This stock price testing suggests that the stock price is relatively expensive. Since the formula for the Graham Price takes into consideration the book value, this is not a surprising result. All the Graham Price Ratios on this stock are very high.
I get a 10 year median Price/Book Value per Share Ratio of 3.66. The current P/B Ratio is 124.20 based on a Book Value of $114.6M, Book Value per Share of $0.37 and a stock price of $45.88. This stock price testing suggests that the stock price is relatively expensive. Since, generally speaking, the P/B Ratio is a very good test because it does not use estimate, this is not a surprising result because for the last few years, the book value has been negative. This is never what I like to see.
I get a 10 year median Price/Cash Flow per Share Ratio of 18.47. The current P/B ratio is 18.50 based on Cash Flow per Share estimate for 2021 of $2.48, Cash Flow of $769M and a stock price of $45.88. The current ratio is 0.2% above the 10 year median dividend yield. This stock price testing suggests that the stock price is relatively reasonable and at the median.
I get an historical median dividend yield of 0.45%. The current dividend yield is $0.38% based on dividends of $0.18 and a stock price of $45.88. The current dividend is 15% below the historical dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above median. Since this only had dividends for 8 years, the 8 year median dividend yield is the same as the historical median dividend yield.
The 10 year median Price/Sales (Revenue) Ratio is 3.12. The current P/S Ratio is 3.59 based on Revenue estimate for 2021 of $3,962M, Revenue per Share of $12.77 and a stock price of $45.88. The current ratio is 15% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above median.
Results of stock price testing is that the stock price might be reasonable but it is on the high side. The dividend yield test is showing the stock price is relatively reasonable but above median and this is confirmed by the P/S Ratio.
Is it a good company at a reasonable price? The stock price might be reasonable. There are two things I do not like about this stock and they are both reasons why I would not consider buying at this point. The first is the high indebted as shown by the series of negative book values. Lot of companies have been caught by high debt at the wrong time (wrong times tend to be recessionary periods).
The other thing is I do not buy dividend stocks with dividends less than 1%. It takes too long to get to a decent return on your original purchase price. This company has a yield of only 0.69% after 5 years. However, the yield of 4.26% after 10 is not that bad. The thing is that the stock price has moved up sharply. The question is, will the big increase in stock price continue.
When I look at analysts’ recommendations, I find Strong Buy (2), Buy (6) and Hold (6). The consensus would be a Buy. The 12 month stock price consensus is $55.00. This implies a total return of 20.26%, with 19.88% from capital gains and 0.38% from dividends.
The analysts on Stock Chase like this company and only one mentions the high debt. Vineet Kulkarni Motley Fool says this company is an attractive investment for a TFSA due to stable cash flow and dividends. It is interesting that Stock Chase gives this stock 5 stars out of 5, but Simply Wall Street gives it two stars out of five. A writer on Simply Wall Street says this stock has an intrinsic value of $54.00. A writer on Simply Wall Street says this company’s ROCE is high. Team Kalkine on Kalkine Media thinks this stock is recession proof.
Dollarama Inc is a Canada-based company principally engaged in operating discount retail stores. The company provides a broad range of everyday consumer products, general merchandise, and seasonal items, with merchandise at low fixed price points. Its web site is here Dollarama Inc.
The last stock I wrote about was about was Ovintiv Inc (TSX-OVV, NYSE-OVV) ... learn more. The next stock I will write about will be Pivot Technology Solutions (TSX-PTG, OTC- PVVTF) ... learn more on November 04, 2020 around 5 pm. Tomorrow on my other blog I will write about Dividend Stocks November 2020.... learn more on November 03, 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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