In July I did a stock screen of Canadian dividend paying stocks, that have increased their dividend over the last 5 years, have a low payout ratio and are attractively priced.  I used some other metrics as well, and you can read the full post HERE

The screen narrowed down the Dividend Aristocrats list from about 100 stocks, to under 20, and ranked them based on about 10 different metrics. With the recent market downturn happening in Canada, I decided to take a look back, and see if any of the companies on my list have been discounted enough to warrant a buy.  There were 7 companies now trading at a 10% or more discount from July.  One stock however caught my eye: Transcontinental [TCL.A].  TCL is trading at a 33% discount from just 3 months ago!

Stock Price on July 27 Price Now Difference % Discount
Transcontinental 30.62 20.37 10.25 33%
CCL Industries 67 53.36 13.64 20%
CWB 36.47 30.86 5.61 15%
Canadian Tire Corp 175.5 149.27 26.23 15%
Dollorama 46.54 39.8 6.74 14%
CAE INC 20.63 17.83 2.8 14%
Andrew Peller 16.5 14.77 1.73 10%
Methanex Corp 89.24 81.66 7.58 8%
Saputo 42.99 39.63 3.36 8%
Enghouse Systems 77.19 72.2 4.99 6%
Loblaw 69.31 65.11 4.2 6%
Metro Inc 43.88 41.43 2.45 6%
TD Bank 76.75 72.58 4.17 5%
Richelieu Hardware 26.98 25.65 1.33 5%
EXCO 9.49 9.07 0.42 4%
Stella Jones 45.09 43.4 1.69 4%
Equitable Group Inc 61.5 59.56 1.94 3%
ATD.B 60.2 61.46 -1.26 -2%
Gildan Activewear 33.77 39.14 -5.37 -16%

Transcontinental was primarily a printing business(still the largest in Canada), but over the last little while have been making acquisitions to focus more on the packaging side of their business.  As you can see, their revenue has shifted dramatically from Printing to Packaging over the last 8 years.

Transcontinental Revenue By Sector

*Source: TCL Investor Presentation PDF

 

So why has the share price tanked?

There seems to be 3 main reasons the price has dipped a full 33% since July.

  1. Investors weren’t thrilled with the most recent quarter, as revenue was pretty flat
  2. The entire Canadian market has taken a beating
  3. Investors seem to still be valuing this as a printing company, when in fact, more than 50% of revenues now come from the packaging business.

There seems to be some fear that because the printing side of the business isn’t generating as much, there might not be any growth in the future, however, this is an experienced team, who, over the last decade has been making acquisition after acquisition to ensure they are well positioned for the future.  They have sold off multiple local newspapers, and purchased 3 new packaging companies just in the last 12 months.

Although revenue has been fairly flat, they’ve become very efficient, and reduced the cost of revenue substantially.   Their net income and earnings per share have been strong over the last 3 years, and they’ve also raised their dividend every year since 2001.

TCL is currently trading at just 7.2 X Earnings and pays a 4.16% (and growing) dividend to wait until the stock price catches up.

TCL Dividends

 

Transcontinental also seems to think they are currently trading at a discount, because they have been buying back shares over the last couple of days as well!

I haven’t pulled the trigger yet – but I think I might before the end of the month if the price stays low.

What do you think? Do you own TCL? Would you buy it at these prices?

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