Stock of the Month Part 3: KP Tissue ($KPT) Play Offense with Defense?

Good Day Everyone,

Thank you for joining me as we look at part 3 of our monthly Stock of the Month series. Before we start today, I just want to say that this series was meant for us to try and find hidden gems, so you won’t be looking at mainstream stocks (unless requested). If you want to find information on Apple, there are dozens of analysts that cover that stock with research readily available any where. With that in mind, let’s get to the stock.

Stock Screener

As usual, let’s pull the stock screener. I decided to simplify the search this time, please see below. The screener can be found at http://web.tmxmoney.com/screener.php

The Stock

The company we’re going with today is called KP Tissue Inc. Ticker symbol (KPT). The company is exactly what it sounds like, a tissue company. A high level overview is posted below.


Dividends: The company pays quarterly dividend payments of $0.18 for an annual yield of 5.11%. The company also offers a discounted dividend reinvestment plan which is posted below. Anyone investing in this company for the long term is encouraged to take up this option. 


Corporate Structure:

KP Tissue has an interesting structure. As you can see below, they own 16.2% of Kruger Products LP. As an investor, you own shares in KP Tissue. For the purpose of this analysis, we will be looking at Kruger Products LP as their results directly affect shares of KPT.


Market Position:

Kruger is a market leader in 2 of the 3 segments that they operate in. Below is a table to summarize. I also included the list of brands that they offer in Canada (you might recognize some). 


Financial Performance

Just because they have recognizeable brands, doesn’t mean they are a good investment. Let’s look into their recent financial performance. First of all, forgive my terrible lines. I’m doing this post on my new iPad so expect more of the same in the future haha! Hopefully my line drawing will improve in the future, but I do feel like it’s important to highlight certain things. As you can see, profitability and margins have increased over the last quarter  and vs  same time  last year. In a commoditized environment such as tissue manufacturing, it is always encouraging to see increasing margins. The reasons were discussed by management below as well.


Risks:

If you decide to invest in KP Tissue (Kruger indirectly), you’ll need to be aware of some of the risks the company faces. Below are some of the major ones. A full list of risk factors can be found on their investor relations  website.

Market Risk: As with any stock, it is subject to market risk. No matter how well the company is doing, if the overall market is declining, it’d be hard for KP Tissue to go against the tide. 

Currency Risk: Kruger Products reports in USD, therefore they are subject to currency risk as they operate in Canada and Mexico. 

Liquidity Risk: This company’s shares do not trade that many shares per day.  If you decide to buy shares in this company, please make sure you use limit orders.

Economic Risk: Kruger relies on raw materials to make their products. Sudden changes in those raw materials can affect their costs and profitability.

Bottom Line: Do I think KP Tissue is a worthwhile investment? If you are a dividend investor looking for a  company with   a decent yield and operates in a defensive industry, this is a solid option for you. The dividend has been stable for the last two years and hasn’t changed. The products are definitely recognizable and they are a market leader in their industry.  I hope this post has helped you make an investing decision. As always, if you want to suggest a stock for me to look at, feel free to message me. I also have a few spots left for the budgeting tool giveaway for anyone who subscribes to my blog. Thank you all for your time.

Disclaimer: I don’t own shares in KP Tissue, please ensure any investing decision you make meets your risk tolerance and objectives.

Options2Riches

Twitter: @Options2Riches

Email: Options2riches@gmail.com

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