3 Top Canadian ADRs For Growth

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Includes: GIL, MGA, SJR
by: TopYields

Summary

Analysis of 3 Canadian ADRs show they are growth-oriented and are set to return shareholder value.

Gildan Activewear has an estimated rise of 25.3% from current EPS; estimated dividend per share up 12.2% from current DPS.

Magna International has an estimated rise of 16.2% from current EPS; estimated dividend per share up 8.7% from current DPS.

Shaw Communications has an estimated rise of 19.7% from current EPS; estimated dividend per share up 20.9% from current DPS.

There are many Canadian stocks that trade both on the NYSE (as ADRs) and Nasdaq stock markets. Mind you, that a single ADR may represent a group of foreign shares held by the bank. If dividends are issued in the company's country of operation, in this case Canada, the dividends will be deposited in the bank, and will be converted to U.S. dollars before they are distributed to the ADRs holders. Another thing you need to know is that tax treatment of ADRs is the same as U.S.-listed securities, except if there are foreign withholding taxes for income distributions, such as dividends or sale proceeds.

This article discusses three Canadian companies that also trade on the NYSE. Their average debt-to-equity ratio is 0.52, which, combined to an average beta of 1.15, makes these stocks a safe bet for risk-averse investors. In addition, their average dividend per share is $0.75, yielding 2.74% at an average payout ratio of 37.3%. Although these stocks trade in different sectors and they can only be compared based on their fundamentals, from the analysis it becomes evident that they are growth-oriented and are set to return shareholder value.

Gildan Activewear (NYSE:GIL) is a Montreal, Canada-based apparel company that engages in the manufacturing and sale of apparel products in Canada, the United States, the Asia-Pacific, Europe and Latin America. Through its Printwear and Branded Apparel segments, Gildan Activewear designs, manufactures, and distributes undecorated activewear products under All Pro, Anvil, Comfort Colors, Gildan, Gildan Performance, Gildan Platinum, Gold Toe, Kushyfoot, New Balance and Silver Toe brands, among others. The company serves wholesale distributors, mass-market retailers, department stores, national and regional chains, sports specialty stores, and price clubs.

Q1 2016 Financial Highlights: In the first quarter of 2016, Gildan Activewear delivered strong results in spite of the drop in revenues as a result of an unseasonably warm weather at the end of 2015. The higher opening fleece inventory levels in the beginning of 2016 have had a negative impact on the fleece shipments, causing a sluggish sell-through in the department stores. More specifically, Q1 2016 results for Gildan Activewear are as follows:

  • Revenues $593.3 million from $636.2 million, a 6.7% YoY decline.
  • Gross profit margin 26.4% from 22.0%, a 19.8% YoY increase due to lower cost of revenues.
  • Total operating expenses down 9.0% YoY to $523.0 million from $574.8 million.
  • Operating income $70.3 million from $61.4 million, 14.6% YoY increase.
  • Net income $63.2 million, up 12.9% YoY from $56.0 million.
  • Operating cash flow for 2015 $353.6 million from $264.1 million, up 233.9% YoY.

Dividend Growth: During the first quarter, Gildan Activewear has spent about $140 million for the share repurchase program that was set up in February. As of the end of April, the company had repurchased 8.6 million shares under our total $12.2 million share repurchase program. In addition, on May 4, 2016, Gildan Activewear declared a quarterly dividend of $0.078 per share, thereby reaching an annualized dividend of $0.31. The dividend yield is 1.03% and the payout ratio is 22%, significantly lower than the average payout ratio of 79.5% of the Retail Apparel Industry. The company's dividend growth since 2011 is 4.0% or 0.8% annually with a dividend increase from $0.075 to $0.078 per share.

The Bottom Line: Gildan Activewear focuses on implementing a strategy that could drive sales growth, expand capacity, and generate cost savings. The company focuses on generating long-term growth and strong shareholder returns. Through 2018, analysts estimate an average EPS of $1.82 per share, up 25.3% from current EPS of $1.45. With an estimated dividend per share around $0.35, up 12.2% from current DPS of $0.31, the expected payout ratio will be 19%.

Magna International (NYSE:MGA) is an Aurora, Canada-headquartered company that engages in the development, manufacturing, engineering, supplying and sale of automotive parts in Canada, the United States, Asia, Europe, and other countries around the globe. Through its North America, Europe, Asia, and Rest of World segments, Magna International offers engineering support services, seating systems and mechanisms, fluid pressure and control systems, vision systems, window systems and more.

Strong Q1 2016 Results: Revenues reached $8.9 billion from $7.8 billion, a 14.5% YoY uprise, leading to a gross profit margin of 14.4%, up 1.3% YoY from 14.2% in Q1 2015. Total operating expenses grew 15.0% YoY to $8.3 billion from $7.1 billion. Operating income reached $675.0 million, up 8.7% YoY from $621.0 million, generating a net income of $492.0 million, up 5.8% YoY from $465.0 million in the same period last year. Operating cash flow for the first quarter was $298.0 million from $280.0 million in Q1 2015, a 6.4% YoY increase.

Dividend Growth: On May 5, 2016, Magna International declared a quarterly dividend of $0.25 per share, thereby reaching an annualized dividend of $1.00. The dividend yield is 2.39% and the payout ratio is 20%, higher than the average payout ratio of 15% of the Auto & Truck Parts Industry. The company has a dividend growth of 38.9% since 2008, or 4.9% annually, raising its dividend from $0.18 to $0.25.

The Bottom Line: In January, Magna International acquired Getrag, a leading company in the dual-clutch transmissions market. The acquisition is expected to improve Magna's positioning to meet OEM needs for improved fuel efficiency and help the company deliver high growth through 2026. In addition, Magna International signed a purchase agreement to acquire Telemotive AG, a leading engineering service provider in the field of automotive electronics, aiming to deliver innovative solutions and full vehicle electronics expertise to the market. Through 2018, average EPS is estimated at $5.77, up 16.2% from current EPS of $4.97 and average dividend per share is expected at $1.09, up 8.7% from current DPS of $1.00. The average payout is estimated at 19%.

Shaw Communications (NYSE:SJR) is a Calgary, Canada-based diversified communications and media company. Through its Consumer, Business Network Services, and Business Infrastructure Services segments, Shaw Communications provides broadband cable television, Internet, digital phone and telecommunications services to 3.2 million commercial and residential customers and the governments of Canada and the United States. Through its Media segment, the company offers direct-to-home (DTH) satellite, satellite distribution, and programming content services through conventional television and 19 specialty networks, including Food Network Canada, HISTORY, HGTV Canada, and Showcase. The company serves a range of industries, including education, health care, hospitality, professional service, and retail.

Q2 2016 Results: In the second quarter of 2016, revenues grew 3.0% YoY to CAD 1.2 billion from CAD 1.1 billion in the same period last year, generating a gross profit margin of 43.6%, down 2.1% YoY from 44.5%. Total operating expenses grew 1.5% to CAD 888.0 million from CAD 875.0 million due to higher depreciation, CAD 201 million from CAD 198.00 million in the second quarter of 2015. Operating income reached CAD 263.0 million from CAD 243.0 million, an 8.2% YoY increase, yet net income dropped to CAD 156.0 million from CAD 163.0 million, down 4.3% YoY due to lower income after taxes and higher minority interests. [Shaw Communications runs its fiscal year from September 1st to August 31st].

Dividend Strength: On April 14, 2016, Shaw Communications declared a monthly dividend of CAD 0.09875, thereby reaching an annualized dividend of CAD 1.19 (or $0.94). The dividend yield is 4.79% and the payout ratio is 70.1%, lower than the average payout ratio 165% of the Communications Equipment Industry. Apparently, Shaw Communications distributes a large percentage of its retained earnings to its shareholders in the form of dividends, but, at the same time, the company invests in new markets and capitalizes on growth opportunities. In addition, the company has delivered a dividend growth of 295% since 2000, or 18.4% annually, raising its dividend from CAD 0.025 to CAD 0.09875 per share.

The Bottom Line: Shaw Communications is committed to delivering superior Internet customer experience. To that end, the company has deployed next generation converged cable access platforms (CCAP) in most of its key markets, thereby dramatically expanding its number of Internet carriers and achieving the lowest network congestion levels. In addition, on January, the company has introduced FreeRange TV, attracting more than 210,000 customers by the end of March, and generating approximately 70% usage. Through 2018, analysts estimate an average EPS of $1.60, up 19.7% from current EPS $1.34 and an average dividend of $1.14 per share, up 20.9% from current DPS of $0.94. thereby generating a payout ratio of around 71.0%.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.