Monday, November 28, 2011

Stella-Jones Inc

First of all, I would like to point out a couple of recent blogs. The first one by My Own Advisor is called “My Favourite Takeaways – Millionaire Teacher and FREE book giveaway”. The second one is by Dividend Ninja and is called Millionaire Teacher Book Giveaway. If you are a novice at investing, this just might be the right blogs for you to read.

Now, let’s talk about the stock Stella Jones Inc (TSX-SJ). I do not own this stock (TSX-SJ), but maybe I should. Really, what is not to like about this stock? It has great growth, very good debt ratios, good ROE. The dividends are a little low at 1.32%, but the 5 and 10 year growth in dividends is 31% and 24% per year, respectively. The dividend Payout Ratios are also low, with the 5 year median payout of 15% for earnings and 11% for cash flow.

The median 5 and 10 year dividend yield on original cost is 4% and 14%. This is very good growth in dividends. Total return over the past 5 and 10 years is around 20% and 33% per year over the past 5 and 10 years. The dividend portion of this return is just under 2% per year. This would be a good stock when starting a portfolio as the dividends will grow very nicely as the portfolio ages.

The growth rate for the company is better than the growth rates per share. This is because of increasing number of shares outstanding, mostly for purchases of other companies for expansion purposes. For example, Revenues have increased over the past 5 and 10 years at 29% and 20% per year, respectively. However Revenues per Share have only increased by 20% and 14% per year, respectively. The median increase in shares is around 2% per year.

All growth rates are good on this company. The Earnings per Share has increased at the rate of 16% and 21% per year, over the past 5 and 10 years. Cash Flow has increased at the rate of 16% and 18% per year over the past 5 and 10 years. Book Value has increased at the rate of 24% and 17% per year over the past 5 and 10 years.

Debt ratios are very good also. Current Liquidity Ratio is higher than normal at 6.59. The 5 year median Liquidity Ratio is still a very good 2.56. The current Asset/Liability Ratio is very good at 2.19. The current Leverage and Debt/Equity Ratios are also good at 1.84 and 0.84.

The Return on Equity is also quite good on this company, with the ROE at the end of the 2010 financial year at 12.2% with a 5 year median ROE of 17.7%. The ROE for the 12 months ending in the third quarter of August 30, 2011 is also quite good at 16.3%.

This is a rather small company and being an industrial company is more risky that utility and finance companies are. (However, you may wonder how moderate the risk is for financials since many expect Sun Life to cut their dividends.) This company may not grow in the future as it has in the past, but it has still done very well and it has little debt, so it can survive hard times. The stock price certainly took a big hit with the recent recession, with the price plunging some 70% by early 2009. It has staged a nice recovery, but it is still not up to the highs it made in 2007.

It probably did not deserve the stock price plunge it took, but earnings and cash flow slowed and they slowed the dividends to just over 5% increases in 2009 and 2010. It would have been quite a scary time for shareholders. However, the total dividend increases for 2011 total just over 31%, with two nice dividend increases. This shows the company has confidence in the future. Also, analysts expect the EPS to grow very nicely for 2011.

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 here Stella Jones. See my spreadsheet at 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 for stocks followed and investment notes. Follow me on twitter.

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