Monday, April 4, 2011

Richelieu Hardware Ltd 2

I first bought this stock (TSX-RCH) in 2007 and then some more in 2009. I have made a total return to date of 23% per year (sorry yesterday I mistakenly said 2.3%) with about 1.2% attributable to dividend income. On this stock, the current dividend yield is 1.4% and it has a 5 year median yield of 1.35%. The dividends are low, but the dividend increases are good. The 5 and 10 year growth rate for dividends is 12.5% and 16% per year, respectively. The increase for 2011 was 22%.

I want to make a couple of more points on dividends before I continue with this stock. First, when buying a stock like Richelieu, I realize that I am sacrificing current yield for future increases in dividend. The other thing is that when looking at Dividend potential you should consider inflation, with background inflation running at 3%, but current inflation running at 1.8% over the past 5 years.

Stock prices do not drive dividends, but payout ratios for dividends do drive stock prices. That is the company must be earning more money or cash flow for dividends payments to increase. Dividend increases can drive stock prices to some decree. Also, dividend can have a stabilizing effect on stock prices.

For this stock, 10 year growth figures are better than the 5 year ones. For example, the revenue per share growth rates for the last 5 and 10 years are 7% and 9% per year, respectively. The cash flow growth rates for the last 5 and 10 years are 9% and 12% per year, respectively. Earnings per shares have grown over the last 5 and 10 years at the rate of 8.8% and 13% per year respectively. So this stock has done well.

The debt ratios on this company are very good. Maybe it is because the CEO owns almost 7% of this company. In any event, the Liquidity Ratio is 3.71 and the Asset/Liability Ratio is 4.79. For this ratio, anything over 1.50 is good. The Leverage Ratio is 1.26 and the Debt/Equity Ratio is 0.26. For these last two ratios lower is better and these are rather low ratios.

I guess the last thing is the Return on Equity. The ROE for the 2010 was 20.6% and the 5 year running average is 17.3%. Because of the shift to IFRS (International Financial reporting Standards) accounting, it has been suggested we should also look at ROE using the new comprehensive income. For this type of ROE, I get 15% for 2010 and a 5 year median value of 15%. I do not have any experience with this, so it is hard to judge this value yet.

I am pleased with my investment in this company. Tomorrow, I will look to see what my spreadsheet says about the current price and also what the analysts are saying.

This company is a distributor, importer and manufacturer of specialty hardware and complementary products. Its products are kitchen and bathroom cabinets, furniture, and window and door. It is also involved with residential and commercial woodworking industry. It has a large customer base of hardware retailers. This stock is widely held, but QV Investors hold about 10% of outstanding shares. They are Institutional Investors looking after Mutual Funds, Pension Funds and Foundation Funds. Its web site is here Richelieu. See my spreadsheet at rch.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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