Sometimes the best choices for income investors are boring securities that no one has ever heard of. They aren't exciting, they don't generate dinner conversation, in fact they're plain dull. All they do is provide steady profits. For most income investors, that's enough.
Recently, a reader suggested I take a look at a company called Intertape Polymer, which had never surfaced on my radar screen. It fits the boring/profitable profile very nicely. Here are the details. Prices are as of the market close on March 18.
Intertape Polymer Group Inc. (ITP-T)
Type: Common stock
Trading symbols: ITP, ITPOF
Exchanges: TSX, Pink Sheets
Current price: $18.58
Entry level: Current price
Annual payout: 52 cents (U.S.)
Yield: 3.72 per cent
Risk rating: Moderate risk
The business: The company describes itself as "a recognized leader in the development, manufacture and sale of a variety of paper and film based pressure sensitive and water activated tapes, polyethylene and specialized polyolefin films, woven coated fabrics, flexible intermediate bulk containers, and complementary packaging systems for industrial and retail use. Its performance products, including tapes and cloths, are designed for demanding aerospace, automotive and industrial applications and are sold to a broad range of industry/specialty distributors, retail stores and large end-users in diverse industries."
If any of that makes sense to you, then you're probably in the packaging business. What matters is that the products this company produces are in increasing demand in this era of on-line shopping and high-speed delivery services. Have you ever seen how much tape is used to wrap a FedEx package? If so, you know what I mean. Do you use duct tape around the house? Intertape Polymer may have made it. Roof underlays? That too.
The company is based in Montreal and Sarasota, Fla. It employs about 2,000 people and has manufacturing operations in North America and Europe.
The security: I recommend the common stock of Intertape Polymer. It trades primarily on the Toronto Stock Exchange under the symbol ITP, but is also listed on the U.S. over-the-counter Pink Sheets as ITPOF.
Why I like it: Two words: stability and yield. This may be a dull business but it is a reasonably steady and predictable one. The dividend has been increased by 62.5 per cent since 2012 and is paid in U.S. dollars for those who need cash flow in that currency.
Financial highlights: The company released year-end 2015 results on March 10. Revenue decreased 3.8 per cent to $781.9 million primarily due to a decrease in average selling price, including the impact of unfavourable product mix (note that the company reports in U.S. dollars).
However, gross margin improved to 21.5 per cent from 20.1 per cent, primarily due to an increase in the spread between selling prices and raw material costs.
Net earnings were up $20.8-million to $56.7-million with the largest reason being a significant reduction in the effective tax rate. Free cash flow increased to $68-million from $46.3-million.
The company is currently repurchasing shares under a normal course issuer bid that allows it to buy back up to four million shares before July 9. So far it has repurchased about 2.5 million shares at cost of $30-million.
Risks: The usual business risks apply here. If the U.S. economy slows, sales will likely follow suit, reducing profits. Also, individual plants may encounter crisis situations such as the company's Columbia, S.C., facility, which was permanently closed after being flooded by a series of heavy rainstorms.
Distribution policy: The shares pay a quarterly dividend of 13 cents U.S. (52 cents annually) to yield 3.7 per cent at the current price.
Tax implications: The quarterly payments are eligible for the dividend tax credit if held by Canadian investors in a non-registered account.
Who it's for: The stock is suitable for investors who are seeking U.S. dollar cash flow and who are willing to accept a moderate degree of risk.
How to buy: The shares trade actively on the TSX and you should have no problem being filled. U.S. investors who buy through the Pink Sheets should place a limit order and be patient as the average daily volume is less than 1,000 shares.
Summing up: Intertape Polymer is a low-profile company that offers U.S. dollar cash flow, a decent yield, and an acceptable level of risk. Ask your financial adviser if it is suitable for your account.
Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. Follow him on twitter @GPUpdates and on Facebook.