Stella-Jones Inc

I am reviewing this company (TSX-SJ) today as I just read a favorable analysts report on it. This is a dividend paying small cap stock. It is not on any the dividend paying stock lists that I look at. I am always interesting in buying some good dividend paying stock, so I did a spreadsheet on this company. I was considering this stock, but I do have some concerns.

In most of the growth elements I follow, this stock has good growth. It has had good growth in Revenues, Earnings, Dividends, Stock Price and Book Value over the last 5 and 10 years. The only place where there is not good growth is in Cash Flow. Although, if you look at the 5 year running average for Cash Flow, the cash flow is also increasing.

However, I would rather have good cash flow than good earnings. I look at earnings as a rather fake number. Its value is that it is calculated the same way for a variety of companies and you can therefore use it to compare different companies. I am not sure that it really illustrates that a company is earning money. The other thing on this company is that the Accrual Ratio is quite high. High Accrual Ratios can question the quality of the earnings.

If the Accrual Ratio is high, you might wonder if they are manipulating the earnings figure. The reason to like cash flow over earnings is that cash flow is believed to be much harder to manipulate than earnings. What you really like to see in the Accrual Ratio calculation is a higher Cash Flow from Operations than the Net Income and a Total Accruals figure that is negative. For this company, you have a positive net income, but often a negative Cash Flow from Operations.

The Liquidity is 2.09 a little down from the 5 year average of 2.28. Any figure over 1.50 is a good figure. The Asset/Liability Ratio is 1.61 a little lower than the 5 year average of 1.92. Here, again, any figure over 1.50 is good. The Return on Equity (ROE) is good at 17.7% for 2008 and 18.5% for the 5 year average.

You certainly cannot complain about the dividend increases on this stock. Dividend increases have been very good since they started raising them in 2005. The 5 year growth in dividends is some 33%. They pay dividends twice a year, in May and November. We do not know what the raise will be this year yet as the November dividend has not been declared.

I will take a look tomorrow to see what other analysts are saying, but I doubt that it will be followed by many, as it is a small company.

Stella-Jones Inc. is a leading North American producer and marketer of industrial pressure treated wood products, specializing in the production of railway ties and timbers as well as wood poles supplied to electrical utilities and telecommunications companies. The Company also provides treated consumer lumber products and customized services to lumber retailers and wholesalers for outdoor applications. Other products include marine and foundation pilings, construction timbers, highway guardrail posts and treated wood for bridges. It has sales in Canada and US. Its web site is www.stella-jones.com. See my spreadsheet at www.spbrunner.com/stocks/sj.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website at www.spbrunner.com/stocks.html for a list of the stocks for which I have put up spreadsheets.