I do not own this stock of Richards Packaging Income Fund (TSX-RPI.UN, OTC-RPKIF). A member of one of my investment clubs suggested this stock.
When I was updating my spreadsheet, I noticed that the stock price has fallen over 25% year to date. It would seem that 2020 was a good year, but so far this year, quarterly Revenue and EPS has fallen. If you look at the year to date Revenue and EPS of the third quarter, Revenue is down 6% and EPS is down almost 29%. From the chart below, the current lower stock price really only affects the Total Return for the last 5 years.
|From||Years||Div. Gth||Tot Ret||Cap Gain||Div.|
The dividend yields are moderate with 5 year dividend growth moderate, but currently flat. The current dividend yield is moderate (2% to 4% ranges) at 2.31%. The 5 year median dividend yield is also moderate at 3.68%. The 10 year median dividend yield is good (5% to 6% range) at 5.29%. The historical median dividend yield is high (7% and above) at 7.31%. This stock used to be an income trust and so the high past dividend yields. The dividend growth for the past 5 years is 8.40% per year. However, this is because there were big dividend increases in 2016 and 2017. The dividends have been flat since then.
The Dividend Payout Ratios (DPR) are fine. The DPR for EPS for 2020 is 30% with 5 year coverage at 58%. The DPR for CFPS for 2020 is 15% with 5 year coverage at 26%. The DPR for Free Cash Flow for 202 is 22% with 5 year coverage at 40%.
Debt Ratios are fine. The Long Term Debt/Market Cap Ratio is very good at just 0.03. I also look Debt to Cash Flow and how many years it would take to pay off the debt in cash flow. For this, 3 years is a good number, but for this company it is 0.32 years (i.e., less than 1 year). The Liquidity Ratio is low at 1.32, but add in cash flow after dividends and it is 1.73. The Debt Ratio is good at 1.83. The Leverage and Debt/Equity Ratios are fine at 2.20 and 1.20.
The Total Return per year is shown below for years of 5 to 16 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.|
The 5 year low, median, and high median Price/Earnings per Share Ratios are 15.46, 17.92, 20.37. The corresponding 10 year ratios are 13.98, 16.47 and 19.38. The corresponding historical ratios are 13.64, 15.70 and 18.38. The current P/E Ratio is 15.42 based on EPS estimate for 2021 of $3.70 and a stock price of $57.05. This ratio is between the low and median ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a Graham Price of $34.48. The 10 year low, median, and high median Price/Graham Price Ratios are 1.01, 1.35 and 1.64. The current P/GP Ratio is 1.65 based on a stock price of $57.05. The current ratio is above the high of the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
Different people calculate the Graham Price differently. In the above equation, I am using the formula with the EPS part using the EPS estimate for 2021. Another way of calculating this is to use the Graham Price formula with the last 3 EPS. In this case for years 2018 to 2020. Here Graham Price is $32.96 and the 10 year low, median, and high median Price/Graham Price Ratios are 1.10, 1.57 and 1.90. The P/GP Ratio is 1.73 based on a stock price of $57.05. This ratio is between the median and high ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10 year median Price/Book Value per Share Ratio of 2.29. The current P/B Ratio is 3.99 based on a stock price of $57.05, Book Value of $166M, and a Book Value per Share of $14.28. The current ratio is 74% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median Price/Cash Flow per Share Ratio of 9.21. The current ratio is 12.71 based on Cash Flow for the last 12 months of $52.3, Cash Flow per Share of $4.49 and a stock price of $57.05. The current ratio is 38% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I get an historical median dividend yield of 7.31%. The current dividend yield is 2.31% based on a stock price of $57.05 and a dividend of $1.32. The current dividend yield is 68% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median dividend yield of 5.29%. The current dividend yield is 2.31% based on a stock price of $57.05 and a dividend of $1.32. The current dividend yield is 56% below the 10 year median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
The 10 year median Price/Sales (Revenue) Ratio is 0.82. The current P/S Ratio is 1.51 based on Revenue estimate for 2021 of $441M. The current ratio is 84% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
Results of stock price testing is that the stock price is on the expensive side. Most of the testing is showing this. The exception is the P/E Ratio where the stock price is showing as reasonable. The best test probably is the P/S Ratio test and it is showing the stock as relatively expensive. The problem with the dividend yield tests is the fact that this company used to be an Income Trust and Income Trust always paid relatively higher dividend yield than other companies.
Is it a good company at a reasonable price? I think that the price is on the high side. Shareholders have had good returns in both dividends and capital gains. However, I would expect that the dividend yield to be lower in the future. Although this might be a company to watch and buy when the price is more reasonable.
This company had its best year probably in 2020 as far as Revenue, EPS and Cash Flow is concerned. I see that the stock price with a 5 year capital gain of 32% is rising faster than the Revenue with 5 year gain of 14%, EPS with a 5 year gain of 18%. However, Cash Flow is rising faster with a 5 year gain of 38% and Cash Flow per Share with a 5 year gain also of 38%.
On the other hand, the stock is down some 25% to date. The 5 year capital gain growth to date is 18%. The 5 year growth in EPS to date is 34%, but the 5 year Revenue Growth to Date is 10% and the 5 year growth in Cash Flow is 9%. Year to date, Revenue is up but EPS and Cash Flow is down. The Final thing is that it is Revenue that in the end that will push growth in EPS and Cash Flow.
I look at the total return over a number of years. For P/S Ratio and P/E Ratio, the lower the ratio the cheaper the stock. For yield, the higher the yield, the cheaper the stock. In the chart below you can see that the beginning P/E Ratios level has not predicted good returns and neither has the Dividend Yield. It would seem that only the P/S Ratio has and the current one is higher than in the past.
In the following chart the total return for the 10 years to December 31, 2020 is 29.27% per year. The beginning yield was at 8.98%, and the P/E Ratio and the P/S Ratio were at 10.06 and 0.58. Does this chart change my opinion of the stock price?
|# Years||Total Ret||Beg P/E||Beg P/S||Beg Yield|
When I look at analysts’ recommendations, I find a Strong Buy (1) recommendation. The consensus would be a Strong Buy. The 12 month stock price consensus (but there is only one) is $80.00. This implies a total return of 42.54% with 40.23% from capital gains and 2.31% from dividends.
Most of the analysts on Stock Chase like this stock as a buy. Nikhil Kumar on Motley Fool thinks this stock will out outperform the market. Adam Othman on Motley Fool thinks this company has a stable and profitable business and the stock would be good to add growth to a TFSA. A writer at Simply Wall Street via Yahoo Finance says that the company has a sustained record of paying dividends and might rise them again in the future. The company announces their third quarter results on Globe Newswire.
Richards Packaging Income Fund (the “Fund”) is a limited purpose, open-ended trust created on February 26, 2004 to invest in distribution businesses throughout North America. The Fund commenced operations on April 7, 2004 when the Fund completed an initial and indirectly purchased 96% of the securities of Richards Packaging Inc. The remaining 4% represented the exchangeable shareholder ownership by management. Richards Packaging Inc is involved in packaging distribution businesses. Its web site is here Richards Packaging Income Fund.
The last stock I wrote about was about was Magna International Inc (TSX-MG, NYSE-MGA) ... learn more. The next stock I will write about will be Chartwell Retirement Residences (TSX-CSH.UN, OTC-CWSRF) ... learn more on Friday, December 17, 2021 around 5 pm. Tomorrow on my other blog I will write about Health Care Stocks.... learn more on Thursday, December 16, 2021 around 5 pm.
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