Thursday, November 25, 2010

Goodfellow Inc.

I am reviewing this stock (TSX-GDL) today because I have not done so for a year. I started to look at this stock when I was searching for small cap stocks that paid dividends. It looked like an interesting stock, although it was not the one I decided to buy at that time.

In regards to dividends, this company basically pays what they can afford to pay. It has also paid special dividends when they thought this was appropriate. Sometimes, as far as dividends are concerned, stockholders can do very well with a company with this sort of dividend policy. Their dividends have increased over time, but the increase has been uneven. With this sort of policy, stockholder can sometimes make more dividend income than from companies that increase their dividends over time, but will only increase them if they are very sure that the increased dividends can be maintained.

Another way of looking at dividends for this stock is that total return has been for the last 5 and 10 years at 3.7% and 14.5% per year, respectively. About 5.5% of the yearly total returns can be attributed to dividends. This is a very good showing. Also, the current dividend yield of about 5.3% is very good.

This company got hit very hard in 2008 and 2009, so there is little or not growth in revenues or cash flow, especially for the last 5 years and very mediocre grow at that over the last 10 years. However, for the financial year ending in August 2010, revenue, cash flow and earnings have all picked up substantially. What you can do to get an idea on how well this stock is doing on various levels is just eyeball the spreadsheet I have online. This can quickly give you an idea of how well the stock is doing, perhaps even a better idea than just looking at averages. See my spreadsheet at gdl.htm.

This company is about 60% owned by insiders. In other small cap, largely insider owned companies like Leon’s and Reitmans, what you find is very strong balance sheets. This allows a company to weather a problematic economic situation and these occur from time to time. The Liquidity Ratio is 2.27 and the 5 year average is 3.09. The Asset/Liability Ratio is 2.71 with a 5 year average of 2.89. I am happy when both these figures are around 1.50. Of course, low debt or leverage is very good thing to have in a company.

I guess that last thing to look at is the Return on Equity. The 5 year average ROE is 10.8% and the ROE at the end of the August 2010 financial year is 10.9%. Their history of ROE is quite good.

Tomorrow I will talk about how good the current price is and what analysts have to say about this stock.

Goodfellow is a wholesaler and distributor of wood and wood by-products with headquarters located in Delson, Qu├ębec. We have wood treating facilities and offer a full inventory of exterior siding, flooring, plywood, treated wood and prefabricated products as well as a broad range of hardwood, softwood and exotic woods. It has distributions centers in Canada and US. It is about 60% owned by insiders. Its web site is here Goodfellow. See my spreadsheet at gdl.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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