Student Transport of America Ltd. (STB.TO)

(Market Call Minute) Valuation is at an all time high.

Management is second to none. A great company, but very low organic growth. They have to win contracts, and have been winning a bunch of new school bus contracts lately. Recently bought back a lot of shares. Thinks it is fairly valued. The dividend is safe. Wouldn’t expect huge capital appreciation from this point on.

This has had a pretty big move, and is not the highest quality stock. He is modelling a 71% payout ratio, so you are going to get paid your 8% dividend. He also models that they have top line annualized growth of about 7% for the next couple of years. Trading a little bit cheaper than its five-year average. Debt levels are okay, but have been lower in the past. Trading near his target price.

This has operations in both Canada and the US. There is a seasonality play on this. Has owned it in the past and is doing work on it currently. When they win a new contract, many times they have to buy new buses.

This is really a yield play without much growth. Had a nice recovery with the market, and then rolled over a bit. As long as you are happy with a yield, don’t expect much growth from it. Dividend yield of 8.8%. A little expensive.

This stock has really whipped around. He is modelling at 75% 2016 estimated payout ratio due to new contract wins. They are getting the benefit of lower fuel prices. Sees 7% revenue growth for next year. Not a bad play. It has been impacted by the Cdn$ falling. As that starts to climb, that should be a benefit.

Limited growth opportunities except for acquisition. Well managed and the dividend is safe. It could be privatized eventually. Keep collecting the dividend.

Reported a decent quarter, and the stock took off. Last year they had horrible performance. Has a very high yield of 9.4%. Wouldn’t call this a growth stock. There is no reason for the company not to be doing well, because of gasoline, which is a big input, as well as the majority of their business is in the US.

This is at a low here, but it is a very toppy stock at about $7. Had a nice drop off, and then has come back again. Found some kind of area where it is not going to drop any more, but it is very, very stuck between $4 and $7. If it got close to $7, he would exit the name, but in the meantime it is a Hold.

Ranks very well in his program. Has had very good earnings growth and reasonable coverage on their interest payments. Dividend yield of 12%.

STB-T vs. NFI-T. He likes STB-T, but prefers NFI-T. NFI-T has become a great little growth company. STB-T has a very high payout ratio. He is comfortable that they are steady enough in business that they can maintain it. It is more likely that NFI-T raises the dividend in a couple of years than STB-T holding it steady.

Any dividend yield of over 9% is questionable. It pays in US$, which is a nice thing. Payout ratio is at about 75%, so there is some question there. They do have contracts and are benefiting from lower gasoline prices. As contracts roll over, the municipalities will want a share of that gas advantage. Also, they have to constantly buy new buses, and in the US with nearly full employment they will get some wage pressure as well. Current dividend yield of 14%.

Continue to Hold. They have done a number of positive things. It may be getting hit on kind of a broad market suspicion that anything that has a dividend that high, must have something wrong with it.

Recently met with management and thinks that the dividend is safe. Probably at a 100% payout ratio, meaning their maintenance capital required plus the dividend equals their dividend. Have typically grown through acquisitions using cash and stock. If you look at a sustainability ratio, you are using bank debt for growth capital and the dividend is coming from operating cash flow. That is somewhat high for a business of this type. Not a name he would own.

Has owned this in the past. If you listen to the CEO, the street just doesn’t understand the business model and where the company is going based on the stock price. He is probably a little cautious on this company. A very capital intensive business in maintenance and buying of buses. At some point they are going to have a fairly big cost on their hands. Have a fair bit of debt, and there is some concern that maybe the dividend is not sustainable. With the dividend being as high as it is, the market is telling you that it doesn’t think it is sustainable. Dividend yield of just over 12%.