I recently decided to sell my 50 shares of WSP Global Inc because the company didn’t have a history of dividend increases. At the time when I bought the shares, like most newbie dividend investors, I was chasing yields without looking for dividend growth. Had I checked, however, I would have quickly seen that they had never raised their dividends even once (oops). Thankfully the purchase wasn’t a complete waste of time given that I still managed to make an 8% gain in just over 12 months (plus over a hundred dollars in dividends).
Selling these shares gave me about $2000 CAD of newly freed capital, which I wanted to reinvest right away — hopefully into a company that fit the dividend growth method a little better. Eventually I settled on a company called “The North West Company”. Unless you live in northern Canada or Alaska, however, you’ve probably never heard of it. That’s because the company mostly operates grocery and supply stores in areas that bigger, more well known companies tend to ignore. They also operate similar stores in the Caribbean and Pacific islands.
There’s a lot to like about this company. First, the stock is currently at the low end of its 52 week range, which means that the point of entry is relatively good. After four years of consistent gains, the stock is down 9% for 2016. Given that most companies today are trading at a premium, it’s nice to find a company bucking the trend!
The reason for this downturn you ask? It seems investors are worried about the slowing growth of its Canadian operations and increased competition. While certainly worrisome, other writers have countered that the company is actually expanding into other areas (namely the Caribbean and Pacific islands) while growing its presence in North America by opening more stores and upgrading current ones.
The second thing that I like is that the stock itself is pretty boring. With a beta of just .11, it’s probably one of the least volatile companies that I own. Even during the financial crisis of 2008, the stock lost about a year’s worth of gains, which it quickly regained once the worst was over. Historically speaking, the stock has steadily been going up.
Finally, the company offers a healthy dividend yield of 4.7% (for some reason Yahoo financial is showing a yield of over 6%, which is wrong). Furthermore, the company’s dividend has generally grown by about 6% every year since 2011 (2014/15 being the exception where the increase was a smaller 3.7%). Although I would prefer higher, anything above 5% for me is acceptable — especially when the yield is already fairly high.
The main negative that I could find, which I think might scare other dividend growth investors away from this stock, is the fact that the company has a high pay out ratio of around 85%. For comparison sake, the industry average is between 60% and 65%. This might also explain why dividend growth is relatively low. But given the company’s consistent history of growth and it’s expansion into other markets, it’s reasonable to expect that the company will continue to increase its dividend. On the flip side, the company has very little wiggle room in terms of increasing its dividend without the risk of adversely risking its business.
Financial Information (as of Oct 14th, 2016)
|52 week range||24.58 – 33.00|
|Mkt Cap||1.27 B|
|Div / Yield||.31(1.24)/4.72|
Visit Reuters for more stats on The North West Company
So this concludes my little write up on why I bought “The North West Company” stocks. Hope you found it interesting. I appreciate all feed back, even critical/negative, so feel free to comment below. I also want to note that I’m completely new to dividend growth investing, so please don’t interpret this post as a professional write up on this stock. The purpose of this is to share with others and learn about this particular investing method.
On that note, thanks for reading!