Is This Dividend Stock an August Buy?

Intertape Polymer Group (TSX:ITP) has a good dividend and an excellent share-buyback program, but is its debt too much of a risk to justify buying shares today?

| 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

For years, I have been looking at Intertape Polymer Group (TSX:ITP) as a potential addition to my dividend portfolio. I have considered buying this stock since it was around $11 a share a few years ago and have watched as the share price marched higher. It has been fairly stagnant recently, bouncing between $16 and $20 a share for some time. What has kept me away is the fear that this stock is dead money, but is it finally ready to rocket higher?

I’ve been drawn to the name primarily because of its titular product: tape. The company produces adhesive tape for a variety of industries including the packaging and construction industries. In addition to adhesives, ITP also produces packing materials, lumber wrap, and membrane liners for the mining and fossil fuel industries.

Its last quarter was somewhat mixed, with some great numbers in some areas and some disappointments in others. Quarterly revenue was one major bright spot, with Q1 2019 revenue increasing 17% year over year. Adjusted EBITDA was also positive with an increase of 8.7%.

On the negative side, net earnings were down a rather uncomfortable 27.2%. The worst part about this number is the fact that is in large part due to an increase in finance costs and higher average interest costs on debt. The company purchased Polyair Acquisition and greenfield manufacturing facilities in India, which increased the debt load considerably. Although management argues ITP’s growth should be significant as a result of capital spending and acquisitions, the debt it uses to fund growth is currently the biggest risk facing ITP.

While ITP’s debt levels are worrying, there are other positive aspects of this company. One of my favourite attributes is how it continues to return capital to shareholders. It does this in two ways: through dividends and share buybacks.

Currently, ITP is buying back shares at a pretty substantial rate. Earlier this month, ITP announced that it was entitled to buy back 4,000,000 common shares for cancellation. These shares represent up to 7.13% of its outstanding float. Think about that for a moment. As the share count is reduced, each of your shares is now more valuable since you now own a larger percentage of the company and have a greater share of its profits. Furthermore, ITP’s shares have now been reduced to the point they were at in 2011. This proves that this company is committed to preserving or even increasing shareholder value over time.

In addition to buybacks providing shareholders with value, the company also pays a good dividend. Currently sitting at around 4%, the dividend provides decent income when compared to fixed-income alternatives. Unfortunately, the dividend has not been increased in a couple of years. Investors need to trust in the company’s belief that investors are better served by putting cash towards share buybacks and servicing its debt rather than providing dividend increases.

ITP is still not quite a buy

Even though I like the company’s products, its buybacks, and its dividend, I have a hard time pulling the trigger on ITP because of its debt. If it starts paying down debt, I might be more tempted to buy. Unfortunately, its debt levels just keep getting bigger. As long as that keeps happening, the share price might continue to stagnate, and the dividend may come under pressure. I’ll stay on the sidelines for now, but if it reduces its leverage and starts raising its dividend, I might just be a buyer in the future.

Should you invest $1,000 in Bank of Nova Scotia right now?

Before you buy stock in Bank of Nova Scotia, 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 Bank of Nova Scotia 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 $21,345.77!*

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 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

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 Kris Knutson has no position in any of the 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

Canada national flag waving in wind on clear day
Dividend Stocks

April’s Best Opportunities: Where I’d Invest $5,000 in 3 Canadian Stocks

I'd be comfortable allocating money to Air Canada (TSX:AC) stock.

Read more »

ways to boost income
Dividend Stocks

Invest $20,000 in 2 Dividend Stocks for $1,224.68 in Passive Income, Even if the Loonie is Low

If you want to make some extra income, then these two dividend stocks are a great choice.

Read more »

investment research
Dividend Stocks

Down 44% in 2025: Is TFI Stock a Buy?

Here’s why TFI stock’s sharp decline could be a golden opportunity for long-term investors.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

3 Dividend Stocks Offering At Least a 6% Yield for Retirees

Retirees can build a portfolio with these high-yield stocks that provide reliable income and protect their financial future.

Read more »

dividends grow over time
Dividend Stocks

Where I’d Put $8,000 in Canadian Value Stocks for Dividend Income Potential

This TSX value ETF also provides above-average dividends, but there are better options if you look closely.

Read more »

concept of real estate evaluation
Dividend Stocks

1 Undervalued TSX Stock Down 34% to Buy as Housing Costs Surge

Don't let the share price get you down. This undervalued TSX stock could certainly be due for a comeback.

Read more »

A plant grows from coins.
Dividend Stocks

2 High-Yield Dividend Stocks for TFSA Investors

These stocks look cheap today and pay attractive dividends.

Read more »

dividends can compound over time
Dividend Stocks

3 Canadian Dividend Stocks Built to Survive a U.S.-Canada Trade War

If you're looking for dividend stocks that will remain strong no matter the global situation, these look top notch.

Read more »