Empire Company Limited: Can This Dividend Stock Ever Recover?


2016 hasn’t been a good year for Empire Company Limited (TSX:EMP.A).

The market punished it several times for missing earnings, something that was caused by a number of different factors including weakness in Alberta, Safeway customers revolting over a new loyalty program and the replacement of much-loved store brand items, and controversy surrounding Air Miles, the loyalty program provider for both Sobeys and Safeway.

It’s also become exceedingly obvious that the company vastly overpaid for its 2013 Safeway acquisition, which cost it $5.8 billion. Empire has written off more than $3 billion of goodwill associated with the transaction in 2016.

Empire shares currently trade hands at $15.41 each, a low not seen since 2009. The company has a market cap of $4.2 billion, which is less than it spent on Safeway just a few years ago.

It isn’t all bad news, however. Empire trades at a big discount versus its peers on a price-to-book value and price-to-sales perspective. And earnings are expected to come in at $1.10 per share for fiscal 2017, putting the company at less than 15 times forward earnings.

Empire pays a $0.40 per share annual dividend, good enough for a yield of 2.7%. With a payout ratio of under 40% of next year’s projected earnings, investors don’t have to worry about a cut. But the company is also unlikely to raise the dividend anytime soon, either.

The bottom line? Empire is cheap and investors are being paid a reasonable amount to wait. But with so much bad news surrounding the stock, it’s unlikely to recover soon. Investors need to be patient.