We regularly review Intertape Polymer Group. This dividend aristocrat plans to grow quickly over the next five to seven years. The stock remains a buy for further long-term share price gains as well as attractive and growing dividends.
We regularly review manufacturing stock Intertape Polymer Group (TSX—ITP). Since we published our April 29 issue, its shares have jumped by 17.1 per cent. Despite the higher price, the shares remain a buy for long-term price gains plus attractive and growing dividends. In fact, ITP has become a ‘dividend aristocrat’ after raising its dividend for five years in a row. This stock plans to grow quickly.
ITP develops, manufactures and sells “a variety of paper and film based pressure-sensitive and water-activated tapes, polyethylene and specialized polyolefin films, woven coated fabrics and complementary packaging systems for industrial and retail use.” Montreal-based, it operates in 17 locations. This includes a dozen factories in North America and one in Europe.
The variety of ITP’s product lines limits its risk from changes in demand for any given product. Similarly, a large number of industrial and retail customers reduces its dependence upon any one customer. The geographical diversification of the company’s factories also cuts its risk. Natural disasters such as earthquakes or hurricanes are highly unlikely to strike all of its factories at the same time.
Manufacturing stock aims to grow fast for years to come
ITP plans to grow quickly over the next five to seven years, using a number of strategies. One is to make profitable acquisitions. A second is to accelerate internally-generated growth. To accomplish this, the company plans to invest to upgrade its factories and their capacity. It will also launch new products. ITP wants its revenue to climb to $1.5 billion (all figures in U.S. dollars unless preceded by a C). This would mark a major improvement over last year’s sales of $783 million. ITP is also aiming to grow its underlying earnings by 15 per cent a year.
President and chief executive officer Greg Yull expects to “achieve our goals of being a low cost manufacturer with world-class assets”. Low-cost producers can survive cyclical downturns and profit in recoveries. Mr. Yull said: “Furthermore, we are actively looking to expand our footprint beyond North America to become a global player who can leverage foreign growth opportunities as well as low cost production in new jurisdictions.”
ITP has the means to achieve these goals. It holds cash of $13 million. Its net debt-to-cash-flow rate is a safe 1.5 times. Even better, its first-half cash flow went up by 8.9 per cent, to $52.7 million. This exceeded total investment of $23.3 million and dividend payments of $15.1 million.
We expect ITP to use part of its growing earnings and cash flow to raise your dividends. It has done so since it began paying them in 2012. Today’s dividend of C$0.73 a share yields an attractive 3.3 per cent.
ITP will keep on rewarding you
ITP is buying back shares. In the 12 months to June 30, it repurchased 1,667,300 shares. The company can buy back up to four million shares until July 13, 2017. That’s equal to 7.2 per cent of the shares held by the public. This will raise its earnings per share.
In 2016, ITP is expected to earn C$1.61 a share. This would represent earnings per share growth of 7.3 per cent. Based on this estimate, the shares trade at a reasonable price-to-earnings, or P/E, ratio of 13.6 times. In 2017, the company’s earnings growth is expected to accelerate to 18 per cent, or C$1.90 a share. Based on this estimate, the stock trades at an even better P/E ratio of 11.5 times.
The consensus recommendation of two analysts is ‘Buy’. We agree. ITP remains a buy for long-term share price gains plus attractive and growing dividends.
The Investment Reporter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846
The Investment Reporter •9/21/16 •