DH Corporation (DH.TO) Buy, Sell or Hold

DH Corporation (DH.TO)

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TOP PICK

Manufacture cheques for personal use and medium size businesses. Also a technology servicing company for the financial services sector. Have a consistent business of growing slowly with a good dividend yield of about 7%. Trades 1.5X book and about 14X earnings. Not expensive. Also recently expanded into the US where there are a lot of smaller banks. Margins should go up.

COMMENT

Is 7% appreciation possible through their yield and capital appreciation? Management team has done a good job in diversifying their business away from the traditional cheque writing business. Cheque writing business is declining about 3% per year. The plus side is that they are a monopoly. You are making a bet on how well management can diversify away from that business. Not sure if any of their acquisitions to date have been big enough to move the dial. 6.5% dividend yield.

COMMENT

Their main business is printing cheques, which is a slowly eroding business. They are trying very hard to replace their existing business with something more electronic. Feels the dividends are sustainable in the next year or 2. He'll continue to watch their progress.

TOP PICK

7.2% yield. This is one of the few stocks that stands out as having forecasts that are steadily going upwards for 2012. Stock is set back almost to it’s price to book.

DON'T BUY

Business for paper written cheques has been declining year-by-year but they have done a very good job to fight that. Have entered into a bunch of lending businesses, which has seen year over year increases. However physical cheque needs is going to continue to decline as we move into the Internet age. Doesn't expect the 8.1% dividend to be cut over the next 12 months.

TOP PICK

Top Short A Pairs Trade going long Versapay (VPY-X) and short Davis+Henderson (DH-T). Core business of cheque printing and processing business is in decline and thinks it will go into much sharper decline in the next 2-3 years.

COMMENT

This is a growth by acquisition business. Relatively low margin and has been pretty steady Eddie. Good cash flow generator. Doesn't see a lot of long-term growth but if you're holding it for yield he would continue to do so.

TOP PICK

Earnings forecasts have been ratcheting upwards quite nicely. Strong yield of 7.6%.

COMMENT

You have to worry long haul about a cheque printer but they have actually done pretty well. Have added a lot of electronic features. Wouldn’t bet against them. 7.4% yield.

TOP PICK

Top Short Cheque supplier, etc. They are in the business that is clearly deteriorating. His major concern is that they are taking the remaining capital of the company and making acquisitions and using debt to do that.

BUY

This one or DirectCash (DCI-T) or First National (FN-T)? He prefers Davis + Henderson but Likes DirectCash too. A little more negative on First National. However, analysts don't seem to be too high on the stock. Excellent yield of 7.5% and it is a growth stock also.

BUY

Cheque writing company. Very good company and very strong cash flow. Have expanded into the US. For income focused investors, this would be a very good buy. Dividend is reasonably well covered.

TOP PICK

Diversifying their business. Student loan processing, lean processing. Have bought a couple of companies. "Asset", a collect business which is counter cyclical to their student loan business. And "Mortgage" bought in the US which is a web based mortgage sales package. CEO is retiring, new CEO looks good. 70% payout ratio, conservative balance sheet.

BUY

Dominant cheque printer. Has expanded into the US. Manageable payout ratio and the dividend looks safe. Very attractive for income investors.

HOLD

Nice boring company with yield of 6%. People still use cheques. He has some but would not run out and buy it – lack of growth; dividend increase record is not great.

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DH Corporation (DH.TO)