Sound bite for Twitter and StockTwits is: Dividend paying Consumer. The stock price is cheap. Dividends are good, but are not increasing. The Dividend Payout Ratios (DPR) are fine. Debt Ratios are good. See my spreadsheet on K-Bro Linen Inc.
Is it a good company at a reasonable price? The stock price seems to be cheap. problem is that this company used to be an income trust and income trusts can afford a lot higher dividends that corporations. It might have been better off to decrease the dividends at the time of the change to a corporation and then increased them as it could later. The dividends are currently at 4.28%. There is a trade off between dividend yield and dividend increases. The higher the yield the lower the increases.
I do not own this stock of K-Bro Linen Inc (TSX-KBL, OTC-KBRLF). People were talking about this stock at the 2009 Toronto Money Show. This was one income trust being touted as currently a good buy with very good yield. It was also recommended by Aaron Dunn who is the Senior Equity Analyst for Keystone Publishing Corp, a publisher of Canadian investment newsletters.
When I was updating my spreadsheet, I noticed that analysts expect the EPS to be $1.41 in 2021, but EPS came in at $0.81. The problem is that expenses as a ratio of Sales is going up. The Ratio of Expenses to Revenue increases and EPS goes down. See chart below.
| Year | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 |
|---|---|---|---|---|---|---|---|
| Ratio | 0.88 | 0.90 | 0.94 | 0.97 | 0.95 | 0.97 | 0.94 |
| EPS | $1.52 | $1.44 | $0.63 | $0.59 | $1.03 | $0.36 | $0.81 |
However, there is a problem with what is currently included in EPS calculation and their Distributable Cash (which is like an Adjusted Earnings per Share (AEPS)) is probably a better measure. However, this value is down over the past 5 years by 1.42% per year. Analysts expect the next 3 years (2022-2024), this Distributable Cash will increase to $2.17, $3.63, and $4.24.
| Year | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 |
|---|---|---|---|---|---|---|
| Dis Cash | $2.76 | $2.20 | $2.36 | $2.80 | $2.94 | $2.57 |
If you had invested in this company in December 2011, for $1,000.80 you would have bought 45 shares at $22.24 per share. In December 2021, after 10 years you would have received $536.79 in dividends. The stock would be worth $1,639. Your total return would have been $2,075.79.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $22.24 | $1,000.80 | 45 | 10 | $536.79 | $1,639.00 | $2,075.79 |
The dividend yields are moderate with dividend growth non-existent. The dividend yield is moderate (2% to 4% ranges) at 4.01%. The 5, 10 and historical median dividend yields are also moderate at 3.23%, 3.11% and 3.44%. The dividends have been flat since 2014. This company used to be an income trust. It did not cut the dividend when it because a corporation. The problem is that the old income trust companies could pay much higher dividends than corporations can. The DPR for EPS was not bad at 70% in 2014, but it has since grown in 148% in 2021.
The Dividend Payout Ratios (DPR) are fine. The DPR for EPS for 2021 is 148%. The 5 year coverage is 176%. The DPR for Cash Flow per Share (CFPS) is fine at 34% with 5 year coverage at 37%. The DPR for Distributable Cash is fine at 47% with 5 year coverage at 47%. The DPR for Free Cash Flow (FCF) for 2021 is 60% with 5 year coverage at 140%.
Debt Ratios are good. The Long Term Debt/Market Cap Ratio for 2021 is low and good at 0.10. The Liquidity Ratio for 2021 is high and good at 1.70. The Debt Ratio for 2021 is high and good at 2.28. The Leverage and Debt/Equity Ratios are low and good at 1.78 and 0.78, respectively.
The Total Return per year is shown below for years of 5 to 17 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 | 0.00% | -1.00% | -4.09% | 3.09% |
| 2011 | 10 | 0.65% | 8.91% | 4.40% | 4.51% |
| 2006 | 15 | 0.61% | 14.88% | 7.88% | 7.01% |
| 2004 | 17 | 0.95% | 13.15% | 6.52% | 6.62% |
The 5-year low, median, and high median Price/Earnings per Share Ratios are 54.44, 62.36 and 70.27. The corresponding 10 year ratios are 30.52, 34.86 and 39.21. The corresponding historical ratios are 20.57, 23.30 and 26.99. The current P/E Ratio is 28.33 based on a stock price of $28.05 and EPS estimate for 2022 of $0.99. The current P/E Ratio is below the low of the 10 year median ratios. This stock price testing suggests that the stock price is relatively cheap. A problem is the very high P/E Ratios. Stock prices only go so low on a company when EPS drops. That is because the company still has value.
I also have Adjusted Earnings per Share (AEPS) data. The 5-year low, median, and high median P/AEPS Ratios are 13.13, 15.54 and 17.51. The corresponding 10 year ratios are 13.07, 15.22 and 17.16. The current P/AEPS Ratio is 12.93 based on a stock price of $28.05 and AEPS estimate for 2022 of $2.17. This ratio is below the low of the 10 year median ratios. This stock price testing suggests that the stock price is relatively cheap.
I get a Graham Price of $19.78. The 10-year low, median, and high median Price/Graham Price Ratios are 1.80, 2.14 and 2.47. The current P/GP Ratio is 1.42 based on a stock price of 28.05. The current ratio is below the low of the 10 year median ratio. 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 2.48. The current P/B Ratio is 1.60 based on a stock price of $28.05, Book Value of $188M and a Book Value per Share of $17.56. The current ratio is 36% 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 13.79. The current P/CF Ratio is 12.99 based on Cash Flow per Share (CFPS) estimate for 2022 of $2.16, Cash Flow of $23.2M and a stock price of $28.05. The current ratio is 6% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get an historical median dividend yield of 2.31%. The current dividend yield is 4.28% based on dividends of $1.20 and a stock price of $28.05. The current dividend yield is 37% above the historical dividend yield. This stock price testing suggests that the stock price is relatively cheap.
The 10-year median Price/Sales (Revenue) Ratio is 1.91. The current P/S Ratio is 1.09 based on Revenue estimate for 2022 of $275M, Revenue per Share of $25.65 and a stock price of $28.05. The current ratio is 43% 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 P/S Ratio test says this. I know that the dividend yield tests say the same thing, but a problem with the dividends is that they have been flat since 2014. All the tests, except for the P/CF Ratio test shows the stock price as cheap.
When I look at analysts’ recommendations, I find Strong Buy (3), Buy (3) and Hold (1). The consensus would be a Strong Buy. The 12 month stock price consensus is $41.79. This implies a total return of $53.26% with 48.98% from capital gains and 4.28% from dividends based on a stock price of $28.05.
On a recent entry on Stock Chase an analysts said it was a Top Pick with target price of $44.56. Stock Chase gives this stock 1 star out of 5. It is not on the Money Sense list. Daniel Da Costa on Motley Fool thinks it is defensive stock to buy in times of rising inflation. Adam Othman on Motley Fool wrote last July that he thinks this stock might recovery once hospitality industry starts to thrive again. The company put out a Press Release on Newswire about the fourth quarter results of 2021. The company put out a Press Release on Newswire about their results for the second quarter of 2022.
Simply Wall Street via Yahoo Finance looks at Return on Capital Employed for this company. Simply Wall Street puts out 3 warnings signs on this stock of dividend of 4% is not well covered; large one-off items impacting financial results; and profit margins (1.9%) are lower than last year (5.3%).
K-Bro Linen Inc is a healthcare and hospitality laundry and linen processor in Canada. It operates in major cities across Canada, and has two distribution centers, providing management services and laundry processing of hospitality, healthcare, and specialty linens. It operates through two divisions, which are the Canadian division and the United Kingdom division. Its web site is here K-Bro Linen Inc.
The last stock I wrote about was about was Granite REIT (TSX-GRT.UN, NYSE-GRP.U) ... learn more. The next stock I will write about will be BRP Inc (TSX-DOO, OTC-DOOO) ... learn more on Wednesday, September 28, 2022 around 5 pm. Tomorrow on my other blog I will write about Paulina Neuding, Substack.... learn more on Thursday, September 27, 2022 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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