Is it a good company at a reasonable price? The company is being bought out. I see no reason for any small investor to buy it although the current price is lower than the buyout price. I sold, because I see no reason to hold on to a stock that will be bought out. I rather sell and move on.
I do not own this stock of Home Capital Group (TSX-HCG, OTC-HMCBF), but I used to. I started reviewing this company in September 2009. It is a dividend growth company and was coming up on lists of good dividends paying stocks. It was on some dividends paying companies lists that I look at. I bought it in 2017 and sold in December 2022 as it was being bought out. See below. See information about the buyout at $44. 00 in cash here.
When I was updating my spreadsheet, I noticed I had this for just under 6 years. I sold because it was going to be bought out. I see no sense waiting for it to be bought out because I will not gain much from my selling point to the buyout. I made 12.40% return on this stock with 12.04% from capital gains and 0.36% from dividends.
If you had invested in this company in December 2012, for $1,004.19 you would have bought 34 shares at $29.54 per share. In December 2022, after 10 years you would have received $134.64 in dividends. The stock would be worth $1447.72. Your total return would have been $1582.36.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $29.54 | $1,004.19 | 34 | 10 | $134.64 | $1,447.72 | $1,582.36 |
I note that analysts expected the EPS to go up 10% to $5.27, but instead the EPS when down 24% to $3.64. They are publishing Adjusted Earnings per Share (AEPS) and this value was 3.91% in 2022. So, the AEPS did not come up to what the analysts thought would be the EPS for 2022.
The dividend yields are low with dividends restarting. The current dividend yield is low (below 2%) at 1.49%. The 5, 10 and historical dividend yields are also low at 0.00%, 1.44% and 1.33%. The 5 year dividend yield is 0.00% because dividends were stopped between 2018 and 2021 inclusive. The company restarted dividends in 2022. The new dividend rate is still 40% below what it was for the last full year of dividends in 2016. There was only one dividend paid in 2017.
The Dividend Payout Ratios (DPR) are good. The DPR for EPS for 2022 is 1.3% with 5 year coverage at 2.4%. The DPR for Cash Flow per Share (CFPS) for 2022 is 12.8% with 5 year coverage at 1.6%. The DPR for Free Cash Flow (FCF) is 14.5% with 5 year coverage at 2.5%. Note that the 5 year coverage is low because of no dividends in previous years.
Debt Ratios are fine. The Long Term Debt/Covering Assets Ratio for 2022 is 0.73. This is fine. I calculate a Liquidity Ratio for 2022 of 2.40, but this is not an important ratio for Financials. The Debt Ratio for 2022 is 1.07 and this is fine for Financials.
The Total Return per year is shown below for years of 5 to 27 to the end of 2022. 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. |
|---|---|---|---|---|---|
| 2017 | 5 | 18.20% | 20.06% | 19.72% | 0.34% |
| 2012 | 10 | 2.92% | 4.96% | 3.73% | 1.23% |
| 2007 | 15 | 6.92% | 6.22% | 4.84% | 1.38% |
| 2002 | 20 | 16.16% | 15.81% | 13.11% | 2.70% |
| 1997 | 25 | 18.87% | 21.35% | 17.69% | 3.66% |
| 1995 | 27 | 39.64% | 28.39% | 11.25% |
The 5-year low, median, and high median Price/Earnings per Share Ratios are 6.31, 9.19 and 11.15. The corresponding 10 year ratios are 6.45, 9.22 and 11.76. The corresponding historical ratios are 7.50, 9.11 and 11.89. The current P/E Ratio is 7.44 based on a stock price of $40.25 and EPS estimate for 2023 of $5.41. The current 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 $70.69. The 10-year low, median, and high median Price/Graham Price Ratios are 0.49, 0.66 and 0.89. The current P/GP Ratio is 0.57 based on a stock price of $40.25. The current 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 10-year median Price/Book Value per Share Ratio of 0.94. The current P/B Ratio is 0.98 based on stock price of $40.25, Book Value of $1,555M, and Book Value per Share of $41.05. The current ratio is 4% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I also have an estimate for the Book Value per Share for 2023 of $45.40. This implies a ratio of 0.89 with a stock price of $40.25 and a Book Value of $1,719M. This ratio is 5.6% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10-year median Price/Cash Flow per Share Ratio of 4.02. The current P/CF Ratio is 8.32 based on Cash Flow for the last 12 months of $183M, Cash Flow per Share of $4.84 and a stock price of $40.25. The current ratio is 107% 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 1.13%. The current dividend yield is 1.49% based on dividends of $0.60 and a stock price of $40.25. The current yield is 12% above the historical median 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 1.44%. The current dividend yield is 1.49% based on dividends of $0.60 and a stock price of $40.25. The current yield is 3.6% above the 10 year median dividend yield. This stock price testing suggests that the stock price is relatively reasonable and below the median.
The 10-year median Price/Sales (Revenue) Ratio is 3.30. The current P/S Ratio is 2.58 based on Revenue estimate for 2023 of $590M, Revenue per Share of $15.57 and a stock price of $40.25. The current ratio is 21.6% 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 reasonable. The dividend yield tests say it is reasonable and below the median. The P/S Ratio test says it is cheap. Most of the other tests say the stock price is reasonable and below the median.
When I look at analysts’ recommendations, I find Buy (1) and Hold (3). The consensus would be a Hold. The 12 month target price of $43.83. This implies a total return of $10.39% with 8.89% from capital gains and 1.49% from dividends.
Stock Chase. Stock Chase gives this stock 3 stars out of 5. There is nothing recent on Stock Chase, but stock is being bought out. Jitendra Parashar on Motley Fool talks the stock skyrocketing after buyout agreement made. The company put out a Press Release about its fourth quarter results for 2022. Simply Wall Street via Yahoo Finance talks about who owns shares in this company. Simply Wall Street gives this stock 4 stars out of 5. It gives one warning of high level of non-cash earnings.
Home Capital Group Inc is a specialty finance company that offers residential and commercial mortgage lending, securitization of insured mortgage products, consumer lending, and credit card services. The company also offers deposits via brokers and financial planners, and through its direct-to-consumer deposit brand, Oaken Financial. Home Capital's mortgage lending focuses on homeowners who typically do not meet all the lending criteria of traditional financial institutions. Its web site is here Home Capital Group.
The last stock I wrote about was about was Bombardier Inc (TSX-BBD.B, OTC-BDRBF) ... learn more. The next stock I will write about will be RioCan Real Estate (TSX-REI.UN, OTC-RIOCF) ... learn more on Wednesday, March 15, 2023 around 5 pm. Tomorrow on my other blog I will write about Core Picks for Retirement.... learn more on Tuesday, March 14, 2023 around 5 pm.
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