I half-choked, half-spit out my water when I saw this stock.
Not because the stock is bad — although it definitely has bad parts to it — but because I was just shocked how ignorant investors can be sometimes.
What I’m referring to is the influence that financial institutions have on stock prices and how investors like you and me shy away from stocks that financial institutions are no longer interested in.
Let me let you in on a little secret: just because financial institutions aren’t pouring millions of dollars into a stock doesn’t mean the stock isn’t valuable. In fact, stocks that aren’t manipulated by financial institutions often have much more realistic share prices.
The stock I will be talking about today is Reitmans (TSX:RET.A), which is by no means the sexiest stock on the TSX, nor one of the first options investors would choose.
Reitmans is an apparel retailer and specializes in clothing for women under its multiple brands, which include Reitmans, Penningtons, RW & CO., Addition Elle, Thyme Maternity and Hyba. Each one caters to a different demographic, which allows Reitmans to benefit from diversification.
That said, Reitmans is a good investment based on a high dividend yield and strong operating cash flows.
High dividend yield
For a stock that is not an income fund, Reitmans pays a generous dividend, which equates to a current dividend yield of 7.463%!
If you’d invested $10,000 in the company at the beginning of the year and held it to year-end, you would receive $746 in passive income alone!
Before I continue, I want to caution investors that Reitmans is not for the faint of heart. Since the beginning of the year, the share price has dropped 39%, and there is a chance that the price may continue to drop.
I’m sure you’re wondering why I would even recommend a stock like Reitmans, let alone claim that it’s the number one stock on the TSX, but keep on reading, and, I assure you, it will all make sense.
The company is sitting on $162 million of cash and equivalents with liabilities of $153 million as of fiscal year-end 2019. This means that if the company were to go bankrupt today (assuming its cash and liabilities are constant) it would be able to pay off all its liabilities — which includes debt and capital leases — and still have $9 million in cash left over.
As an investor, in the event the company goes bankrupt, this means that the $330 million in other assets the company owns will be liquidated to pay off shareholders, essentially making Reitmans a nearly risk-free investment. There aren’t too many companies on the TSX like this!
Strong operating cash flows
Even as the company’s revenues are stagnating, it has generated strong operating cash flows in excess of $30 million in each of the past five fiscal years.
As the saying goes, “cash is king.” This couldn’t be truer for a public company, as cash is used to maintain the operations of the business, pay lease and loan obligations, and purchase inventory.
The fact that Reitmans generated $42 million in cash in fiscal 2019 makes it a gem on the TSX and indicates it is a relatively healthy company.
Summary
Reitmans is no Shopify, but it’ll still make its investors rich.
If you are willing to take the risk and purchase Reitmans, there is every indication you will be generously awarded. With a dividend yield in excess of 7% and assets that far surpass liabilities, investors have very little long-term risk granted they can stomach the ebbs and flows of Reitmans’s share price.
You would be a fool to not check out this company.
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