Q: I know 5i is not a big fan of KPT (KP Tissue). I owned a few years ago when I good dividend was hard to find and got out of it with a small capital gain. I have been watching it slide down to $9 per share which makes the dividend close to 8 per cent again. The third quarter presentation of the parent company, Kruger products, showed that debt is getting paid down, margins are up especially size the price of pulp is down. Next year's capex is guided to be slightly less than last year including the investment in their new Sherbrooke plant. If KPT could sustain the dividend with higher pulp prices, higher trucking costs, and lower prices for the products they sell then surely the dividend must be safe. I already bought a little at $9. Should I add some more and if the answer is no can you tell me why?
5i Research Answer:
We think it is a name to own primarily for the dividend and at an 8% yield, we think it is getting attractive. Of course, it is small and this comes with risks and the dividend is not necessarily 'guaranteed', so there are risks. We probably wouldn't want it as a 'core' position, but think an argument can be made here for some outsized yield.