Is it a good company at a reasonable price? The stock price currently seems reasonable. I have not done great on this company, but I invested in this company for diversification and also because it is an Alberta company. I wanted to invest in the Canadian West. I have no intentions of selling my shares. I think that the reason I bought the shares is still valid.
I own this stock of Melcor Developments Inc (TSX-MRD, OTC-MODVF). This was one of the stocks on Mike Higgs' list of good dividend growth stocks. So, I looked into it and bought it. I bought this stock first in 2008 and then some more in 2009. It is a little followed real estate company from Western Canada.
When I was updating my spreadsheet, I noticed that I have not done that well on this stock. I bought at the wrong time. My total return for all my accounts is 6.52% with 4.19% from dividends and 2.33% from capital gains.
However, for my trading I was paying $17.38 a share when I first bought this stock in 2008, but in 2009 I got some shares for $4.28 a share and $6.65 a share. In this account my total return is 8.95% per year with 4.05% from capital gains and $4.90% from dividends. When buying dividend growth stocks, a total return of 8% or more is good.
The company provide Funds from Operations (FFO) values and say that they prefer them. I can see why because to come up with EPS they have to include adjustments on investment properties etc., which really does not tell you what they earnings are.
If you had invested in this company in December 2011, $1000.92 you would have bought 76 shares at $13.17 per share. In December 2021, after 10 years you would have received $412.68 in dividends. The stock would be worth $1,082.24. Your total return would have been $1,494.92.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $13.17 | $1,000.92 | 76 | 10 | $412.68 | $1,082.24 | $1,494.92 |
The dividend yields are moderate with dividend growth restart (again). The current dividend yield is moderate (2% to 4% ranges) at 3.22%. The 5, 10 and historical dividend yields are also moderate at 3.68%, 3.50% and 2.91%.
They have restarted dividend increases in 2021 after decreases in 2019 and 2020. I have data for 31 years on dividends and they have increased dividends 21 times and decreased them 5 times. The last two years of decreases was 2016 and 2009. Dividends are still below the high of $0.60 in 2015 at a current level of $0.56. The last dividend increase was in 2022 at 16.7%.
The Dividend Payout Ratios (DPR) are fine. The DPR for EPS is 26% with 5 year coverage at 37%. They also provide DPR for Funds from Operations (FFO). The DPR for FFO for 2021 is 59% with 5 year coverage at 17%. The DPR for Cash Flow per Share for 2021 is 18% with 5 year coverage at 19%. The DPR for Free Cash Flow for 2021 is 16% with 5 year coverage at 37%. This DPR is expected to be at 99% in 2022, but last year they said that the FCF would be $16M in 2021 and it came in at $71M.
Debt Ratios are fine. The Long Term Debt/Market Cap Ratio is 1.53 and this is not good as the company’s assets are not being valued possibly at their worth. The Debt/Covering Asset ratio is fine at 0.48. Although a Liquidity Ratio is generally not calculated for Real Estate company, I get one of 3.60. The Debt Ratio is good at 2.12. The Leverage and Debt/Equity Ratios are good at 1.89 and 0.89.
The Total Return per year is shown below for years of 5 to 31 to the end of 2021. 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. |
|---|---|---|---|---|---|
| 2016 | 5 | -1.73% | 2.87% | -0.36% | 3.24% |
| 2011 | 10 | 10.00% | 4.87% | 0.78% | 4.08% |
| 2006 | 15 | 2.59% | 1.26% | -1.67% | 2.94% |
| 2001 | 20 | 8.90% | 14.96% | 8.57% | 6.39% |
| 1996 | 25 | 11.34% | 19.15% | 9.57% | 9.59% |
| 1991 | 30 | 10.85% | 16.13% | 8.81% | 7.32% |
| 1990 | 31 | 12.98% | 16.94% | 9.32% | 7.62% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 10.31, 11.35 and 12.39. The corresponding 10 year ratios are 6.40, 7.51 and 8.93. The corresponding historical ratios are 6.30, 7.28 and 8.66. The current P/E Ratio is 9.87 based on a stock price of $17.41 and EPS estimate for 2022 of $1.78. The current ratio is above the 10 year median high ratio. This stock price testing suggests that the stock price is relatively expensive. On the other hand, a P/E Ratio of 9.87 is a low ratio as is any P/E Ratio under 10.00.
I get a Graham Price of $36.83. The 10 year low, median, and high median Price/Graham Price Ratios are 0.37, 0.45 and 0.50. The current P/GP Ratio is 0.47 based on a stock price of $17.41. The current ratio is between the median and high ratios of the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median. The P/GP Ratios are also very low. A ratio of less than 1.00 points to a cheap stock.
I get a 10 year median Price/Book Value per Share Ratio of 0.52. The current P/B Ratio is 0.51 based on a Book Value of $1,116M, Book Value per Share of $33.87 and a stock price of $17.41. The current ratio is 0.8% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and at the median.
I get a 10 year median Price/Cash Flow per Share Ratio of 12.02. The current P/CF Ratio is 7.88 based on Cash Flow of last 12 months of $72.8M, Cash Flow per Share of $2.21 and a stock price of $17.41. The current ratio is 34% 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 2.91%. The current dividend yield is 3.22% based on dividends of $0.56 and a stock price of $17.41. The current dividend yield is 11% 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 3.50%. The current dividend yield is 3.22% based on dividends of $0.56 and a stock price of $17.41. The current dividend yield is 8% below the historical 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 1.94. The current P/S Ratio is 1.59 based on Revenue estimate for 2022 of $360M, Revenue per Share of $10.92 and a stock price of $17.41. 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 10 year dividend yield test says it is reasonable and above the median and the P/S Ratio test says it is reasonable and below the median. The historical dividend yield test says the stock is reasonable and below the median. I do wonder how good the dividend yield tests are because the dividends have fluctuated a lot. Most of the testing is showing the stock price as reasonable and above and below the median, except for the P/E Ratio test (expensive) and the P/CF Ratio test (cheap). Some of the ratios, like the P/E Ratio and the P/GP Ratios are very low.
When I look at analysts’ recommendations, I find a Hold (1) recommendation. The 12 month stock price consensus is $19.00. this implies a total return of 12.35% with 9.13% from capital gains and 3.22% from dividends based on a current price of $17.41. Alpha Spread site has 2 estimates and average of $19.38.
There nothing recent on Stock Chase for this stock and past comments are mixed. Stock Chase gives this stock 1 star out of 5. Nikhil Kumar on Motley Fool thinks that Melcor trades at a very inexpensive valuation. Aditya Raghunath on Motley Fool in 2020 said that the company admitted that the future is uncertain. The company on Global Newswire talks about fourth quarter results. A Simply Street Report is on Yahoo Finance and it talks about insider buying. Simply Wall Street talks about risk of this company and they are: Earnings have declined by 14.9% per year over past 5 years; Debt is not well covered by operating cash flow; Unstable dividend track record; Large one-off items impacting financial results. Actually, earnings are up over the past 5 years, but earnings have varied a lot over time. They put out a FFO value, which is more stable, but not by much.
Melcor Developments Ltd is a real estate development and asset management company. It develops and manages mixed-use residential communities, business and industrial parks, office buildings, retail commercial centers, and golf courses. It is an Alberta company operating in Canada and US. Its web site is here Melcor Developments Inc.
The last stock I wrote about was about was BCE Inc (TSX-BCE, NYSE-BCE) ... learn more. The next stock I will write about will be Goodfellow Inc (TSX-GDL, OTC-GFELF) ... learn more on Tuesday, April 06, 2022 around 5 pm. Tomorrow on my other blog I will write about Dividend Stocks April 2022 .... learn more on Tuesday, April 5, 2022 around 5 pm.
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