Cineplex (TSX: CGX, OTC: CPXGF), a recent addition to the Dividend Champions Portfolio, delivered reasonable second-quarter results, though the record-breaking comparable quarter from a year ago makes the headline numbers appear quite poor upon first glance. Indeed, the unfavorable comparison shows earnings per share plunging 70% year over year on a 2% decline in revenue. Over the past year, the company has increased its dividend by 6.7%. 

Revenue decreased due to lower box office and food sales, as cinema attendance dropped 14% year over year. However, it should be noted that the comparable quarter benefited from three movies that now rank among the highest grossing films of all time, which was a hard act to repeat. Remember “The Avengers: Age of Ultron,” “Jurassic World,” and “Furious 7?”

On the positive side, Media revenues increased by 15%, and Games revenues more than doubled. Operating expenses were well contained, but adjusted EBITDA (earnings before interest, taxation, depreciation and amortization) declined by 35%.

The balance sheet is solid, with a debt-to-capital ratio of 30%, while operating and free cash flows remain decent.

We’ve been waiting for an opportunity to buy more shares of Cineplex at a lower price. Unfortunately, investors took the weak results in stride, and the share price barely budged after earnings were released. Meanwhile, the stock trades near full value, though its dividend still yields an attractive 3.2%.

Tough times continue for Finning International (TSX: FTT, OTC: FINGF), as second-quarter earnings per share dropped 42% year over year. The dividend remains unchanged.

Over the past year, Finning has been struggling to rein in costs in light of the weaker operating environment. But sales continue to deteriorate faster than cost reductions can offset the declines.

Revenues in the key Product Support division held up reasonably well, but New Equipment sales fell sharply as miners and energy producers cut purchases due to lower commodity prices. The Alberta wildfires added to Finning’s operational woes, as the oil sands business essentially shut down for six weeks during the quarter.

In the near to medium term, Finning will continue to face challenges as commodity producers adjust to the new reality of lower product prices. For the full year, earnings per share are expected to decline by 30%, though a strong balance sheet and reasonable cash flow should ensure a stable dividend.

The forward price-to-earnings ratio may seem expensive, but it will appear more reasonable when profits recover. Finning’s shares currently yield an attractive 3.4%.

Inter Pipeline (TSX: IPL, OTC: IPPLF) reported adjusted funds from operations per unit (AFFO is an estimate of free cash flow) grew 8% year over year. Over the past year, the dividend was increased by 6%.

The business performed well at the operating level, with the quarter’s star turn coming from the company’s European bulk liquid storage facilities, where higher utilization, an acquisition, and some foreign-exchange benefits combined for a 44% increase in profits.

The oil sands transport business also performed well, with a 1% increase in volumes and a 5% increase in profits.

And the natural gas liquids extraction business bounced back from a poor first quarter by delivering a 31% increase in profits supported by higher volumes and spreads. This business has exposure to volatile commodity prices, but now accounts for less than 10% of profits.

The balance sheet remains fully levered, with a debt-to-capital ratio of 61% and investment-grade credit ratings from the main agencies. Capital expenditures continue to move sharply lower as the multi-year expansion program comes to an end, which should allow for further debt reduction and increased distributions to shareholders.

Inter Pipeline also announced that it has agreed to acquire Canadian natural gas liquids midstream assets from Williams Companies in a C$1.35 billion all-cash deal. The businesses include two liquids extraction plants located near Fort McMurray, Alberta, and a pipeline system that connects the extraction plants with a processing plant at Redwater near Edmonton.

The deal is expected to be accretive to cash flow immediately upon closing and will be funded with proceeds from a C$600 million share issuance and debt.

Management is clearly looking to take advantage of the energy crash by buying assets at a huge discount. The businesses being acquired in this deal, however, will increase the firm’s exposure to volatile energy prices: Only 40% of their product mix will be sold under long-term, fee-based contracts, while the balance will be sold under short-term, commodity-based contracts.  

Inter Pipeline’s shares yield an attractive 5.8%, and we estimate the stock’s fair value at C$31, or US$23.

K-Bro Linen (TSX: KBL, OTC: KBRLF) reported much-improved results for the second quarter as the benefits of 3sHealth contracts and the new Regina plant started to surface. Earnings per share grew 11% year over year, while the dividend was left unchanged.

Revenues rose 12% as the new contracts with 3sHealth made a contribution for the full quarter. However, expenses climbed 13%, weighing on EBITDA (earnings before interest, taxation, depreciation and amortization), which increased just 6%.

Margins were slightly lower than the previous year, but we expect them to return to normal levels as greater efficiencies at the new Regina plant are realized during the course of the year.

The company’s balance sheet is in excellent shape, with a debt-to-capital ratio of 6%. Cash flow from operations is healthy, up 10% from a year ago. The dividend is well covered, with a payout ratio of 46% of distributable cash flow.

Management is planning to relocate the Toronto plant to a new facility before the end of the year at a cost of $35 million. Longer term, it is also considering a new facility in Vancouver to cater to the higher volumes under the enlarged contracts with 23 Vancouver regional healthcare providers.

While the cost of the new facilities is material, we expect that these operations will eventually lead to higher margins and profitability. Though K-Bro remains a winner in our estimation, investors should be aware that temporary disruptions in profitability could occur as new facilities come on line.

The stock is reasonably valued, with an enterprise value to EBITDA ratio of 10.9 times, which reflects a discount to its peers. The stock yields 2.8%, and we estimate its fair value at C$47, or US$36.

Manulife Financial (TSX: MFC, NYSE: MFC) reported core earnings per share (excluding market gains and losses on the investment portfolio) declined 9% year over year. Over the past year, the dividend has grown 9%. 

Asia was the firm’s best-performing region, with core earnings up 12%, while wealth management and U.S. operations posted lower profits.

Manulife’s valuation is undemanding, with a 2016 price-to-earnings ratio of 10 times, a price-to-book ratio of 1.0 times, and an attractive dividend yield of 4.4%.

Sun Life Financial Inc. (TSX: SLF, NYSE: SLF) reported that second-quarter underlying earnings per share declined 10% year over year. Over the past year, the company has increased its dividend by 6.6%. 

Core profits in the Canadian segment fell 20% below last year’s record quarter, while the U.S. and Asian operations fared much better. 

Sun Life’s MFS division continued to struggle, as operating income in U.S. dollar terms dropped 12%, while average assets under management declined 6%.

Sun Life’s stock yields 3.9%, and we estimate its fair value at C$44, or US$33.

TMX Group’s (TSX: X, OTC: TMXXF) adjusted second-quarter earnings per share jumped 40% year over year. The dividend remained unchanged.

The business delivered an excellent all-around performance, with strong revenue growth in all verticals as new listings and trading benefitted from much-improved market conditions. Overall revenues increased by 9%, and EBITDA (earnings before interest, taxation, depreciation and amortization) was up 22%, as costs were kept under tight control.

The balance sheet remains solid, with a debt-to-capital ratio of 24%, while the company continues to enjoy investment-grade credit ratings.

The stock is fairly priced, but remains at a discount to its global peers. The dividend yield of 2.7% remains attractive, though we’re concerned about the lack of dividend growth over the past few years. With a payout ratio of 42% and an improving business environment, there should be room to increase the dividend soon.

The share price has risen sharply over the past few months, so further gains may be limited in the near term. We estimate the stock’s fair value at C$55, or US$42.

Earnings Checklist

The table below lists the date for each Dividend Champion’s earnings announcement. The companies highlighted in green have already reported results.