In the spirit of the Agrium/Jana proxy battle, let’s take a hypothetical view at some other Canadian companies that are potentially stiffing shareholders on the return of capital front.
In the five years prior to Jana’s interjection, according to Capital IQ, Agrium had generated total free cash flow of $2.2 billion. Over that same period, the company paid out a total of $85 million in dividends and spent $35 million on share buybacks. This amounted to a payout of just 5.4% of Agrium’s accumulated free cash.
Shortly after Jana began making noise, Agrium significantly bumped the dividend and installed a sizeable buyback. In 2012 Agrium generated free cash of $837 million, paid out $115 million in dividends and bought back $913 million worth of stock. A payout rate of 123% was the result.
Shareholders demonstrated their approval of Agrium’s loosened purse strings by driving the stock up 45% in calendar 2012.
5 that might be next
To uncover several other names that may have caught the eye of an activist like Jana, we’re going to look at Canadian companies that have generated significant free cash flow over the past 6 annual periods relative to what they have paid out through dividends and share buybacks. Tabled below are five intriguing non-financial companies that turned up with the lowest free cash payouts to shareholders.
| Company Name |
Total Levered FCF |
Payout |
| OpenText Corp. (TSX:OTC,NASDAQ:OTEX) |
$1,337 |
2.8% |
| Cott Corp. (TSX:BCB) |
357 |
3.9% |
| Stantec Inc. (TSX: STN) |
435 |
10.6% |
| Constellation Software Inc. (TSX: CSU) |
723 |
17.3% |
| Westjet Airlines Ltd. (TSX:WJA) |
1,691 |
20.2% |
Source: Capital IQ
The Foolish Bottom Line
Each of these companies has demonstrated an ability to generate significantly more cash than it’s currently returning to shareholders. High return growth opportunities (ie. acquisitions) hopefully have a lot to do with it. These growth opportunities won’t last forever and when they run out, management needs to be aware enough to switch gears and start diverting the free cash in another direction – like back to shareholders. Given the Agrium/Jana tiff, if management isn’t willing to do the gear shifting, someone else is bound to do it for them!
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Fool contributor Iain Butler does not own shares of any company mentioned at this time. The Motley Fool owns shares of Open Text.
