Wednesday, December 19, 2012

Methanex Corp

On my other blog I am today writing about our Secular bear market... continue...

I do not own this stock of Methanex Corp (TSX-MX, NASDAQ:-MEOH). I started reviewing this stock in 2010 because I had read some good reports on it. It also got a solid "C" grade in a money sense review of stocks in November 2010. You might be interested in this link to Money Sense. Money Sense rated the top 100 Canadian Dividend Paying stocks. Money Sense was looking for stocks that provided generous income at reasonable prices.

The problem for a Canadian investing in this company is that, not only does the company report in US$, but it also pays dividends in US$. That means that if you invest in this stock in a Canadian currency account your dividends will fluctuate with the US-CDN currency exchange rate. As with a lot of companies reporting in US$, this stock has done better in US$ terms than in CDN$ terms.

This company started to pay dividends in 2002 and that year they only paid dividends for half the year. Over the past 5 and 8 years dividends have grown at the rate of 4.6% and 11.5% per year in CDN$ terms. (In US$ terms they have grown at 6.5% and 14.8% per year.)

With the low dividend yield also comes low Dividend Payout Ratios. The 5 year median DPRs are 32% for earnings and 15% for Cash Flow. This low dividend yield together with the low increase rate will not provide much in the way of a great yield on your original purchase price. So if you bought this stock today, after 10 years, you would probably be only making 4.3% on your original purchase price. This might rise to 6% in 15 years. However, it would be a decent return.

This is an industrial stock, so it has been hit quite hard during recent recessions. Over the past 5 years the total return is down by 3.76% per year. There was a capital loss of 6.07% per year. Dividend income was at 2.31% per year. However, over the past 10 years this stock's total return is 14.05% per year with 10.21% per year from capital gain and 3.84% per year from dividends. You can do well over the longer term with this stock.

The outstanding shares have declined over the past 5 and 10 years by 2.5% and 3.4% per year, respectively. This is because they have bought back shares for cancellation in a number of years in the past. There have been some years of increases lately due to stock options.

Revenue growth is not good in CDN$ with growth at just 1.6% per year and 3.8% per year over the past 5 and 10 years. Growth is better in US$ at 4.4% per year and 8.5% per year over the past 5 and 10 years. Revenue per share is, of course, better because of the decreasing number of outstanding shares. In CDN$ terms, revenue per share has grown by 4.2% and 7.4% per year over the past 5 and 10 years.

Earnings are down over the past 5 years by some 16.4% per year. They are up over the past 10 years by 11% per year. Cash flow per share is down by 6.6% per year over the past 5 year and up by just 3.4% per year over the past 10 years. Book Value per share is up by 2.9% per year and 3% per year over the past 5 and 10 years. These values are in CDN$ terms.

Because earnings do fluctuate due to the business cycle, you might want to look at EPS with a 5 year running average. In this case, EPS is still down over the past 5 years, but by less than 1% per year. EPS are up over the past 10 year by 18% per year.

Return on Equity fluctuates because this is an industrial stock and it would get hit my recessions. The ROE for the financial year ending in 2011 was quite good at 16.2%. The ROE on comprehensive income was also good and around the same at 16.7%. This shows that the earnings are of good quality.

The Liquidity Ratio is good with the current ratio at 2.73 and the one for the financial year ending in 2011 at 1.72. The 5 year median is 2.29. The Debt Ratio is also very good, currently at 1.91 and with a 1.89 value at the end of the 2011 financial year.

The Leverage and Debt/Equity Ratios are fine with the current ratios at 2.37 and 1.24, respectively. The 5 year median ratios are 2.19 and 1.15, respectively.

What I like about the company is that they have good debt ratios. This is good for an industrial company because its business will fluctuate with the business cycle. We are always going to have recession and the good debt ratios will help at these times.

This is a stock you might buy for diversification purposes. You could do well over the longer term. The company obviously thinks that it will do well in the short term as they raised dividends 8.8% in 2012.

Methanex is the world's largest supplier of methanol to major international markets in North America, Asia Pacific, Europe and Latin America. Methanol is an important ingredient in many of the essential industrial and consumer products. Head Office is in Vancouver, B. C. Canada. Its web site is here Methanex. See my spreadsheet at mx.htm.

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. See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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