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 that the company has a loss starting after Cost of Sales and Services, and Selling and Administrative Expenses. The Net Finance Costs just adds to the above loss. Both the Cost of Sales and Services, and Selling and Administrative Expenses are lower than in 2019, but the Net Finance Costs is higher by 59%. Even AFFO is lower in 2020 by 19% and the Distributable Income by 28%.
The dividend yields are high with dividend growth non-existent. The current dividend yields are high (7% and above) at 9.55%. The 5, 10 and historical dividend yields are also high at 8.19%, 7.36% and 8.33%. The dividend was flat from 2007 to 2019, when they started to decrease it. The dividend was cut by 50%. This company is still called an Income Fund but the 2006 legislation says that all companies will have same taxation from 2011 tax year. I am sure that the dividends were cut because they were unaffordable. The last 3 years have had income losses and there is expected to be an income loss in 2021.
The Dividend Payout Ratios (DPR) need improving. The DPR for 2021 cannot be calculated because of income losses. The 5 year coverage is also non-calculable due to income losses. The DPR for Cash Flow per Share is 36% with 5 year coverage at 40%. The DPR for Free Cash Flow for 2021 is 36% with 5 year coverage at 86%. There seems to be agreement on FCF.
The company is still giving out information on Adjusted Cash Flow from Operation (AFFO) and the DPR for AFFO for 2020 is 52% with 5 year coverage at 64%. This payout ratio is fine. The company also gives out information on Distributable Cash. The DPR for Distributable Cash for 2020 is 117% with 5 year coverage at 116%. This payout ratio is too much too high.
Debt Ratios need improving. The Long Term Debt/Market Cap Ratio for 2020 is 1.43 and this is much too high. The ratio is down a bit at present at 1.12. It is a problem when it is at 1.00 and some analysts like it even lower at 0.50. However, it is not so much a growing debt problem as falling stock price problem. The Liquidity Ratio for 2020 is 1.43 and it you add in cash flow after dividends, it is 2.08. The Debt Ratio is too low at 1.32 as I prefer this to be at 1.50 or higher. The Leverage and Debt/Equity Ratios for 2020 are 4.13 and 3.13 respectively. These are too high. I would prefer them to be below 3.00 and below 2.00.
The Total Return per year is shown below for years of 5 to 19 to the end of 2020. 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. |
|---|---|---|---|---|---|
| 2015 | 5 | -8.97% | -10.52% | -20.06% | 9.54% |
| 2010 | 10 | -4.59% | 2.05% | -9.10% | 11.15% |
| 2005 | 15 | -3.77% | 9.95% | -3.94% | 13.90% |
| 2001 | 19 | 2.20% | 12.38% | -3.62% | 16.01% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are negative, and so cannot be used. The corresponding 10 year ratios are really low at 2.73, 2.46 and 2.18. The corresponding historical ratios are more reasonable at 10.72, 11.55 and 13.16. I could use them. The current P/E Ratio is negative because an earning loss is expected in 2021. The P/E Ratio for 2022 is 628.00 and unreasonably high because EPS is expected to be only $0.01. I cannot do not stock price testing using the P/E Ratio.
I estimate the current Graham Price to be $1.11. The 10 year low, median, and high median Price/Graham Price Ratios are 0.98, 1.07 and 1.16. The current P/GP Ratio is 5.64 based on a stock price of $6.28. The current P/GP Ratio is very high. It does not improve in 2022. I cannot do any stock price testing using the P/GP Ratio.
I get a 10 year median Price/Book Value per Share Ratio of 1.51. The current P/B Ratio is 1.14 based on a Book Value of $571M, Book Value per Share of $5.51 and a stock price of $6.28. The current ratio is 24% 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 7.06. The current P/CF Ratio is 5.32 based on a stock price of $6.28, Cash Flow per Share estimate for 2021 of $1.18, and Cash Flow of $122M. The current ratio is 25% 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 8.33%. The current dividend yield is 9.55% based on dividends of $0.60 and a stock price of $6.28. The current ratio is 15% above the historical dividend yield. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10 year median dividend yield of 7.36%. The current dividend yield is 9.55% based on dividends of $0.60 and a stock price of $6.28. The current ratio is 30% above the 10 year dividend 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 0.48 based on a stock price of $6.28, Revenue estimate for 2021 of $1,352M, and Revenue per Share of $13.05. The current ratio is 45% 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 dividend yield tests say the stock is reasonable and cheap even with a 50% dividend cut. The P/S Ratio test says that the stock is also cheap. The other good tests of P/CF Ratio and P/B Ratio also say that the stock price is relatively cheap.
Is it a good company at a reasonable price? The stock price certainly appears as cheap. Unfortunately, this stock is cheap for a reason. I find this stock too risky for my stock portfolio.
When I look at analysts’ recommendations, I find Strong Buy (1), Buy (3), Hold (3) and Underperform (1). The consensus recommendation would be a Buy, but there is a big range of recommendations. The 12 month stock price is $8.28. This implies a total return of 41.40% with 31.85% from capital gains and 9.55% from dividends.
Analysts on Stock Chase thinks it is a risky buy because of problems the company has had. Christopher Liew, CFA on Motley Fool thinks this stock might appeal to dividend investors because of its high dividend rate. Personally, I would not buy a stock with a high dividend rate because generally the rate is high for a reason. The executive summary on Simply Wall Street gives this stock 3 stars out of 5 and list 3 risks. A writer on Simply Wall Street thinks that the current dividend might be unsustainable. A writer on Simply Wall Street says that the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock.
Chemtrade Logistics Income Fund provides industrial chemicals and services to customers in North America and around the world. Its geographical segments are Canada, the United States, and South America. Its web site is here Chemtrade Logistics Income Fund.
The last stock I wrote about was about was Aecon Group Inc (TSX-ARE, OTC-AEGXF) ... learn more. The next stock I will write about will be Alimentation Couche-Tard Inc (TSX-ATD.B, OTC-ANCUF) ... learn more on Friday, August 20, 2021 around 5 pm. Tomorrow on my other blog I will write about You Do Not Need to Be Rich to Invest.... learn more on Thursday, August 19, 2021 around 5 pm.
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