Why Saputo Inc. May Be Worth a Look

With consistent revenue growth, shares of Saputo Inc. (TSX:SAP) may be a fantastic investment.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Over the past year, shares of Saputo Inc. (TSX:SAP) saw a dramatic increase in value, only to trade sideways for several months before beginning to decline in value. Currently trading near $42, shares offer investors a dividend yield close to 1.5% and trade at a trailing price-to-earnings multiple (P/E) of approximately 23 times. Although it would seem that investors are paying a bit of a high price for shares, the value may be there to back it up. Let’s take a look.

In the business of producing various dairy products, including cheeses and creams, the company is more defensive than cyclical. A higher valuation is perfectly acceptable given the consistency of the business model through both good and bad economic cycles.

Let’s look first at the balance sheet. There is over $2.30 in assets for every dollar of liabilities. Solvency is not an issue. Considering current assets and liabilities, the ratio is two to one. The company’s liquidity will not be an issue either. With a dividend of $0.15 per share every quarter, the company has the cash to fund the dividend.

If we look at the income statement on an annual basis, we can see there has been a clear upward trend in revenues every year since fiscal 2014 (the fiscal year ends at the end of March). Revenues have increased at a compounded annual growth rate (CAGR) of 6.53% over the past four years. The bottom line of the income statement (earnings per share) has increased at a CAGR of 8.77% over the same period. Cost containment has been successful for shareholders of Saputo.

The good news for investors has been the additional sharing of excess profits in addition to the dividend. Shares outstanding have decreased by a small amount over the past few years. At the end of March 2016, shares outstanding totaled 392.52 million, which decreased to 386.23 million at the same time one year later. As shares outstanding are calculated on a weighted-average basis, the number of shares outstanding is actually less than the reported 386.23 million. Shareholders have a lot to be happy about.

The capital expenditures have consistently been higher than the amount of depreciation reported on the statement of cash flows, signalling that the company is keen on ensuring the long-term production of the finished product. By having up-to-date equipment, the company can avoid the higher-cost production of older equipment.

With most investors looking for consistent revenues, earnings, and dividends, shares of Saputo may be what’s needed. With a dividend-payout ratio of only 23% for the fiscal year ending March 31, 2017, shareholders may see another increase in the cash they receive.

Investors looking for the cheddar may just have found it.

Should you invest $1,000 in Saputo right now?

Before you buy stock in Saputo, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Saputo wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ryan Goldsman has no position in any stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

Canadian Red maple leaves seamless wallpaper pattern
Dividend Stocks

5 Canadian Dividend Stocks to Buy and Hold for the Next 20 Years

These Canadian stocks have paid dividends for decades, making them reliable investments to generate regular passive income.

Read more »

Dividend Stocks

3 Canadian REIT Stocks to Buy and Hold for the Next Quarter-Century

These three Canadian REITs trade cheaply and are highly reliable, making them some of the best stocks you can buy…

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Dividend Stocks

1 Practically Perfect Canadian Stock Down 24% to Buy Now and Hold for Life!

CNR stock is a top Canadian stock for investors, especially with shares down on the TSX today.

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

The Best Canadian Stocks to Buy Right Away With $30,000

If you have $30,000 you're willing to invest, these are some of the first Canadian stocks to consider on your…

Read more »

rail train
Dividend Stocks

What to Know About Canadian Pacific Railway Stock for 2025

CP stock has now gone through a major merger, so what do investors have to look forward to?

Read more »

ways to boost income
Dividend Stocks

Top Canadian Value Stocks I’d Buy for Dividend Growth and Appreciation

If you are looking for income and capital appreciation, here are three Canadian value stocks for a great total return…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Canadian Stock to Buy With $2,000 Right Now

The company’s powerful combination of growth, income, and value, positions it well to deliver solid returns, making it a smart…

Read more »

Transparent umbrella under heavy rain against water drops splash background. Rainy weather concept.
Dividend Stocks

This 10.6 Percent Dividend Stock Pays Cash Every Single Month

Are you looking to invest for a rainy day? This 10.6% dividend stock pays cash every month, irrespective of the…

Read more »