Lower interest costs as well as accounting rule changes led to a 91.9% jump in cash flow for this company during the most-recent quarter.
An acquisition has also provided wider exposure to the pulp and paper, water treatment, and oil and gas industries
The stock trades at just 7.2 times the company’s 2019 cash flow forecast.
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CHEMTRADE LOGISTICS INCOME FUND (Toronto symbol CHE.UN; www.chemtradelogistics.com) is one of the largest removal-service providers for resource firms that create acid and sulphur by-products. It converts (and sells) these substances into useful chemicals such as sulphuric acid. Many of its removal contracts are with oil refineries and base-metal processors.
In March 2017, Chemtrade expanded significantly when it completed its $900 million takeover of Canexus Corp. This gave Chemtrade a business that produces and sells sodium chlorate and chlor-alkali products to the pulp and paper, water treatment, and oil and gas industries.
The acquisition was Chemtrade’s biggest since it bought General Chemical in January 2014 for $941.5 million. That company makes a range of chemicals as well as ingredients for prescription drugs, nutritional supplements and veterinary products.
Growth by acquisition adds risk. But the trust has successfully integrated the General Chemical purchase, and Canexus is also proving a good fit with Chemtrade’s operations. The trust’s debt is high, but it generates steady cash flow that can be applied to that debt.
Growth Stocks: Lower prices hurt revenue as cash flow soars
In the quarter ended June 30, 2019, revenue fell 2.1%, to $396.7 million from $405.3 million a year earlier. That was mostly due to lower prices for caustic soda, which offset higher sulphuric acid prices. Meantime, Chemtrade’s cash flow jumped 91.9%, to $51.8 million, or $0.56 per unit, from $27.0 million, or $0.29. That cash flow gain was due to lower interest costs and an accounting change for lease expenses.
Chemtrade offers investors diversified exposure to North American industrial chemicals. As well, demand for most of its products remains strong, and the fund should benefit as customers renew their contracts at higher prices.
The company continues to pay a monthly distribution of $0.10 a unit. The annual rate of $1.20 yields a very high 11.5%.
For all of 2019, the company will probably generate cash flow of $1.45 a unit, and the stock trades at 7.2 times that forecast.
Recommendation in Dividend Advisor: Chemtrade Logistics Income Fund is a buy.
Comments
Bruce
A 130% dividend payout ratio! And you’re recommending this? Please clarify.
Re: 130%. My mistake; that was from a page with outdated data.
Getting data on P/E ratios is easy. Getting dividend payout ratio data is very difficult! Different websites give wildly different results for this figure.
Examples of results for Chemtrade: http://www.marketbeat.com/stocks/TSE/CHE_UN/dividend: 666%
morningstar.ca/ca/report/stocks/dividends.aspx?t=0P000080FU: 923%
ca.investing.com/equities/chemtrade-logistics-income-fund-ratios: 51%
seekingalpha.com/symbol/CGIFF/dividends/dividend-safety: – 24% (that’s a “minus” sign!)
Chemtrade offers investors diversified exposure to North American industrial chemicals. As well, demand for most of its products remains strong, and the fund should benefit as customers renew their contracts at higher prices. The company continues to pay a monthly distribution of $0.10 a unit. The annual rate of $1.20 yields a very high 11.5%. For all of 2019, the company will probably generate cash flow of $1.45 a unit, and the stock trades at 7.2 times that forecast.
We see Chemtrade Logistics Income Fund as a buy.
Meanwhile, we think the best measure for companies in some industries is cash flow per share, rather than earnings per share.
Earnings per share includes a number of non-cash items such as depreciation and amortization or depletion….and earnings are not always an accurate reflection of a company’s health or ability to pay its dividend.
The best examples of this are real estate and resource firms, including oil and gas. For example, real estate companies are not as concerned as industrials in putting profits aside to replace depreciated/obsolete plant and equipment…they can buy a new property and take out a new mortgage.
We do look at earnings per share…but we find (as do the majority of analysts, brokers and so on) that cash flow per share is a better measure in some cases.
Thanks for your question. We don’t cover Empire Co. in any of our newsletters — but we may look at in the future in response to a question from a member of our Inner Circle.
Thanks for spotting that in our free Daily advice! Subscribers to our newsletters got our latest sell advice—but we should have updated the free email advice as well…..
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A 130% dividend payout ratio! And you’re recommending this? Please clarify.
Re: 130%. My mistake; that was from a page with outdated data.
Getting data on P/E ratios is easy. Getting dividend payout ratio data is very difficult! Different websites give wildly different results for this figure.
Examples of results for Chemtrade:
http://www.marketbeat.com/stocks/TSE/CHE_UN/dividend: 666%
morningstar.ca/ca/report/stocks/dividends.aspx?t=0P000080FU: 923%
ca.investing.com/equities/chemtrade-logistics-income-fund-ratios: 51%
seekingalpha.com/symbol/CGIFF/dividends/dividend-safety: – 24% (that’s a “minus” sign!)
Thanks for your comment.
Chemtrade offers investors diversified exposure to North American industrial chemicals. As well, demand for most of its products remains strong, and the fund should benefit as customers renew their contracts at higher prices. The company continues to pay a monthly distribution of $0.10 a unit. The annual rate of $1.20 yields a very high 11.5%. For all of 2019, the company will probably generate cash flow of $1.45 a unit, and the stock trades at 7.2 times that forecast.
We see Chemtrade Logistics Income Fund as a buy.
Meanwhile, we think the best measure for companies in some industries is cash flow per share, rather than earnings per share.
Earnings per share includes a number of non-cash items such as depreciation and amortization or depletion….and earnings are not always an accurate reflection of a company’s health or ability to pay its dividend.
The best examples of this are real estate and resource firms, including oil and gas. For example, real estate companies are not as concerned as industrials in putting profits aside to replace depreciated/obsolete plant and equipment…they can buy a new property and take out a new mortgage.
We do look at earnings per share…but we find (as do the majority of analysts, brokers and so on) that cash flow per share is a better measure in some cases.
Hello Pat . Wondering what you think about Empire Co. emp.a tsx thank you.Ron
Thanks for your question. We don’t cover Empire Co. in any of our newsletters — but we may look at in the future in response to a question from a member of our Inner Circle.
Why are you running an article from Oct 2019 with a buy rating while it is now a hold/sell. This is not the first time this has happened.
Thanks for spotting that in our free Daily advice! Subscribers to our newsletters got our latest sell advice—but we should have updated the free email advice as well…..