Tuesday, April 22, 2014

Textainer Group Holdings Ltd (TGH) Dividend Stock Analysis

Textainer Group Holdings Limited is listed on the New York stock exchange (NYSE) with ticker TGH.

Company Background (source Yahoo Finance):

Textainer Group Holdings Limited, together with its subsidiaries, is engaged in the purchase, ownership, management, leasing, and disposal of a fleet of intermodal containers worldwide. It operates through three segments: Container Ownership, Container Management, and Container Resale. The Container Ownership segment primarily owns and leases dry freight and special-purpose containers. The Container Management segment manages containers on behalf of affiliated and unaffiliated container investors, as well as provides acquisition, management, and disposal services. The Container Resale segment sells containers from its fleet, as well as purchases, leases, or resells containers from shipping line customers, container traders, and other sellers of containers. The company serves shipping lines, freight forwarding companies, and the United States military. As of March 06, 2014, it owned and managed a fleet of approximately 2 million containers, representing approximately 3 million twenty-foot equivalent units. The company was founded in 1979 and is headquartered in Hamilton, Bermuda.


Current Yield and Dividend Growth: 
Textainer currently pays a dividend of USD 0.47 per quarter for a USD 1.88 annual dividend. At the close of market on Thursday, April 17th TGH’s price per share was USD 39.53. This gives the stock a current dividend yield of 4.76%. Normally I look for a dividend yield of at least 3%, so I will be satisfied with this dividend yield from TGH. In 2007, Textainer paid an annual dividend amount of USD 0.20 per share. The dividend trend has been up each year as it now pays USD 1.88 annually per share. This gives TGH a 7 year annual compound dividend growth rate of 37.73%. Textainer has increased its dividend now 7 years in a row, so THG is the dividend challenger (U.S.Dividend Champions by David Fish). Textainer´s dividend growth rate had been very high on last 3 and 5 years, 22.70% and 15.5%. 1 year growth rate is a great 12.30%.  Textainer normally pays dividend in March, May, August and November.

EPS Growth: 
Textainer's EPS has grown an average of 18.99% over the past 5 years and 28.19% in the past three years. Last year the growth of EPS was only 4.21%. Textainer's EPS of development in the past years seems to be very good. Analyst estimates for 5 year earnings growth rate per annum are 10.23% (http://finance.yahoo.com/q/ae?s=TGH+Analyst+Estimates). It's in my opinion a very optimistic estimate and if that will happen, investors can be very satisfied.

Net Income:
Textainer's net income has increased by an average of 16.48% over the past 5 years and 15.05% in the past three years. Last year net income went down -11.67%. The net income trend looks similar to the EPS trend.

Revenue Growth:
Textainer's revenue has increased 13.81% over the past 5 years, 20.29% in the last three years and 8.60% in the last year. The development of revenue looks better as the development of EPS and net income.

Outstanding Shares:
In the last 10 year period, Textainer's amount of shares has increased almost every year. That I basically don’t like, because more shares outstanding, my shares are giving me a smaller portion of the earnings.

Payout Ratio:
Textainer's dividend payout ratio has been in the past 5 years on average 44.36%. Last 12 month period, the payout ratio was about 57.50%. This means that Textainer was distributed around 50% of profits to shareholders and keeping 50% of profits to grow the company. I like this payout ratio because it is fairly low and I don’t believe Textainer's should have any trouble maintaining dividend growth in the future.

Textainer's ROE has been around 22.60% over the past 5 years, which are fine for me.

Net Profit to long term debt:
This number tells me how many years it will take to pay off the current long term debt of the company by using all net profit in it. I would like to see this ratio to be less than 5, because in that case the company is able to pay for all long-term debt for less than five years and on my opinion then the company doesn´t have too much debt. Textainer's long term debt had been clearly over 5 times net profit in the whole history. In recent years, it had grown up very fast. End of the year 2013, it was the highest 13.69.


To find out share fair value I mainly use these methods. (Passive Income Pursuit: Stock Valuation Method ).

Graham Number:
The Graham Number valuation method was conceived by Benjamin Graham, the father of value investing, and calculates the maximum price one should pay for a company given the earnings and book value. Textainer has earned USD 3.21 per share in the last twelve months and has a current book value per share of USD 19.45. The Graham Number is calculated to be USD 37.48, suggesting that TGH is overvalued about by 5.5%.

Average P/E Ratio:
Textainer`s current P/E is 12.31, which are higher as historical 5 years average high (11.28) and much higher as 5 years average low (6.03).  By calculating using estimated EPS USD 3.34 for year 2014 and the average 5 years low P/E ratio (6.03) shares fair value will be USD 20.14. Calculating with 5 years average P/E ratio (8.65), fair value will be USD 28.90.

Average Dividend Yield:
Textainer`s current annual dividend is USD 1.88. At the close of market on Thursday, April 17th TGH’s price per share was USD 39.53. This gives the stock a current dividend yield of 4.76%. Average 5 years high dividend yields has been 9.38%. That dividend yield gives share fair value USD 20.05. Calculating with 5 year average yield 5.37%, the fair value will be USD 35.03.

Average P/S Ratio:
Textainer`s current P/S ratio is 3.88 with revenue estimates for the year 2014 (580.73M). Average 5 years low P/S ratio is 2.37. By calculating using the estimated revenue for the year 2014 and the average 5 years low P/S ratio fair value will be USD 24.13. By calculating with 5 year average P/S ratio (3.41), fair value will be USD 34.72.

Discounted Cash Flow:
Analyst estimates for 5 year earnings growth rate per annum is 10.23%. I will use in my calculation 60% of that, which are 6.14%. Then I assume that continue growth after 5 years will be 3%. I use discount rate 10% and EPS USD 3.21. Total I calculate for next 30 years. That will give me share fair value USD 46.79.

Discount Rates8%9%10%11%12%
NPV of Future EPS$58.18$52.00$46.79$42.37$38.60

Dividend Discount Model:
Textainer`s current annual dividend is USD 1.88. I assume that Textainer will be able to grow dividends for the next 5 years at the lowest of the 1, 3, 5 year growth rate or 15%. In this case that would be 12.30%. Then I assume that after 5 years grow rate will be 5%. To calculate the value I used a discount rate of 10%. Total I calculate again for next 30 years. That will give me share fair value USD 59.50.

Discount Rate8%9%10%11%12%
NPV of Future Dividends$80.88$69.09$59.50$51.65$45.18

Future Price:
Textainer has EPS 3.21 (ttm). When I calculate Textainer`s future price with the analyst estimate for 5 years EPS growth (10.23%) and using the low P/E ratio last 5 years, I come from price USD 31.48. That would give about 25.6% downside for TGH´s current price. By calculating using the average last 5 years P/E ratio, I come from price USD 45.15.

Textainer has operated since 1979 and is the world’s largest lessor of intermodal containers based on the fleet size. I’m looking to add some industrials company in my portfolio. Based on my analysis, I think Textainer is ​​currently relatively high valued. Textainer`s growth development in past years looks good to me, in the last 10 years there are two years, when TGH’s EPS went down (2006 and 2013). Textainer`s payout ratio is now 57.5%, as it has almost always been below 50% in the past 7 years. So there will be a good reserve for dividend increases in the future. Net profit to long term debt is much higher, what I normally like to see, though a high debt is not unusual for this kind of industry segment. Based on my value calculation, TGH is now trading much higher as its average low P/E ratio and also higher as its average P/E ratio. When I look the average dividend yield and average P/S ratio, I see that, TGH is now trading over of those prices. My calculation of discounted cash flow gives price USD 46.79 for the net present value, meaning that TGH is undervalued by 18,24%. Based on the dividend discount model, Textainer is worth USD 59.50, meaning it's currently undervalued by 50.4%. Overall I feel that Textainer is overvalued at current levels. However, I will keep an eye on TGH, if the stock price will fall close to the 35.00 USD perhaps I will buy some TGH to my portfolio.

Disclosure:  I don't own any shares of TGH.

Click here to see my portfolio holdings.


  1. great analysis. I plan on owning TGH. I too want it to go in the lower $30

    1. Hi FF

      We will see, if it will go enough down.

      Thanks for reading!

  2. DividendHawk,

    Thank you so much for this article. TGH looks to have a good combination of yield, growth, and a relatively low payout ratio. I will have to keep it on my radar.

  3. DH,
    This is a new company for me. I love the business, shipping containers. This would be a great way to diversify my portfolio. I'll start keeping any eye on it. On first look, their debt is a little high for my taste, but further research on my part is needed.

    1. Hi RBD
      The level of debt is also my concern in this company.
      Thanks for reading!

  4. HI DH,

    What is your opinon on TGH at this current price? As I own shares, but not sure on what to do. Avarage down or sell?

    Dividend Freedom

    1. Hi DF

      I have not recently been closely followed TGH. I guess that TGH's problems are similar to those of my TAL has. Low commodity prices and a possible slowdown in global economic growth. Hard to say what you should do, I might sell at the end of the year, because I need tax losses.

      Thanks for stopping by!