Tuesday, October 19, 2010

Leon's Furniture Ltd

I want to talk about this company (TSX-LNF) today, as I just bought some more shares. I have been inching my way into this company having bought some shares in 2006, 2008, 2009 and just recently. To date on this stock, I have made a return of 9% per year. The dividend portion of this return is about 3.5% to 4%. One of the things this company does is pay a special dividend at year end if it can afford to do so. For example, in 2006 the special dividend was $.13 a share, in 2007 there was no special dividend, in 2008, the special dividend was $.10 a share, and in 2009, the special dividend was $.20 a share.

A number of people have been talking about this stock recently, although it is mentioned more in investment letters than my analysts. Why should you buy this stock? It is basically the school of Mike Higg’s who ran a successful site for quite a few years saying that when the yield is better than average or long term highs, you should buy a stock. The yield on this stock is 2.7%. This is not the absolute best it has been, which in 2009 was at 3.5%, but it is better than the 5 year average of 2.4% and the 10 year average high of 2.5%.

The other thing that has been reported on this stock is that the recent increase in dividend was almost 30%. I must admit that on other scores, the current price is not showing as a great one. The median P/E low is 12.2 and the median P/E high is 16.3, so the current P/E of 15.1 is not particularly low. Sites that use last 12 months earnings get an even higher P/E of 16.1. The Price/Book Value Ratio at 2.47 is higher than the 10 year average of 1.33. The Graham Price of $10.56 is also 30% higher than the current price of $13.60.

One thing a lot of investment letters and analysts mention is that fact that this company has a very strong balance sheet. That is, it has little debt compared to its assets. The Liquidity Ratio is 2.57 with a 5 year average of 2.00. The liquidity ratio is using current assets and current liabilities. The Asset/Liability ratio is 3.68 with a 5 year average of 3.16. The other thing to mention is that earnings estimates have been moving up. When I looked this stock in April 2010, I got 2010 and 2011 earning estimates of $.84 and $.89. The current estimates for 2010 and 2011 are $.90 and $.96.

The last thing to mention is that when I bought some more shares, there were a lot for sale in the range of over $500,000. I noticed that the CFO has been selling some shares. Leon’s is also buying up shares for cancellation. According to the Insider Trading report, there is a bit of Insider Buying and a bit of Insider selling, but nothing substantial.

As far as analysts recommendations are concerned, I can only find one and the recommendation is a Strong Buy. (See my site for information on analyst ratings.) There is a Wikipedia entry for this company at Leon’s.

This is considered a dividend paying growth stock, and their growth figures are in the decent category, being neither high nor low. You would buy this stock for long term gains and rising dividends.

This company sells home furnishings, appliances and electronics through a chain of retail facilities and franchises located in Canada. Leon family owns 68% of this company. Its web site is here Leon’s. See my spreadsheet at lnf.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 for stocks followed and investment notes. Follow me on twitter.

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