Reitmans - food for thought. I haven't posted here in a while, as I am now "un-retired" again. Truth be told, this employment thing is very time consuming. In the unlikely event that you may have read my blog in the past, this is why there hasn't been any new content for quite some time.
Since writing an entire article on Reitmans isn't going to happen, I thought I might offer up some interesting info, as follows:
- Reitmans has traditionally paid a dividend
- In 2015, Reitmans reduced it's dividend signficantly, opting to pay (only) $0.20 / share.
- From 2015 through to 2020, this dividend, as a % of cash flow from operations ranged from:
- a low of 11% of cash flow from operations
- an average of about 25% of cash flow from operations
- a high of 40% of cash flow from operations
Note that I am utilizing both cash flow from operations before and after changes in working capital. For instance, the high of 40% comes from cash flow from operations
after working capital, whereas if one only looked at cash flow before working capital changes, the high would be 27%.
- For this fiscal year, Reitmans has already created $1.72 or $1.98 of cash flow from operations, the former being before working capital, the latter being after working capital. Annualized, these number are $2.30 and $2.64 respectively.
- It's not an unreasonable assumption to think that Reitmans will, at some point, re-instate a dividend.
- If we assume they opt to go for the low end of the range, then this would suggest a "new" dividend in the ballpark of $0.25/share (11% of $2.30).
- Lastly if we assume various yields, this suggests a price of around
$3.15 (8%, the market doesn't believe Reitmans will be around),
$5.00 (5%, probably closer to what the market might do), or
$8.35 (3%, the market thinks Reitmans is the best thing since sliced bread).
My belief is that once a dividend is reinstated, it will look more like that middle scenario. However, keep in mind I have used the most conservative of assumptions in this example - the lowest % of cash flow (11%) and the lowest cash flow value ($2.30). If either of these are higher, then that suggests a higher price. In any case, my belief is that the price still some upside.
I held on to my Reitmans through the entire COVID debacle, although I was not smart enough to purchase a truck load when it was in penny stock range. I did load up around $0.90, so I guess I was smart enought to realize the opportunity at that point, but I wish I had paid attention sooner.
All the best,
Grey Swan