Friday, April 27, 2012

Leon's Furniture Ltd

I own this stock (TSX-LNF). I first bought this stock in 2006, and then some more in 2008 and 2009. I have made a total return of 4.5% per year. The Dividend portion of this return is 3.3% per year with a capital gain portion of 1.2% per year. Dividends make up 74% of my return.

The 5 year median dividend yield is 2.65% which is quite high for this stock as dividend yield has often been lower than 2%. This stock has a good reputation for dividend increases. The 5 and 10 year dividend growth is at 7.6% and 13.7% per year. When the company is able to, it has given out special dividends. For example in 2012 they have given out a special dividend of $.15 per share.

The Dividend Payout Ratios are good on this stock with the DPR based on earnings at 46% and the DPR based on Cash Flow at 39% for 2011. The 5 year median figures are 44% and 39%, respectively. (See my site for information on Dividend Payout Ratios).

This stock has not done well over the past 5 years. It is in the consumer discretionary section of the stock market and a lot of these companies have struggled, as has this one. It is also a small company, which is little traded. The Leon family own 68% of the outstanding shares of this company. There seems to be only one analyst that follows this stock.

The total return on this stock over the past 5 years is around 2.3%. Since dividends are around 2.86% of the return, there is a small capital loss. The 10 year return is better with return at 11.5% per year with dividends at 3.5% per year. The capital gain over the past 10 years is around 8% per year. Dividends made up 30% of the return.

One of the best growth rates for this stock is for book value. Book Value has grown at 8.5% and 8.2% per year over the past 5 and 10 years. For growth in revenues, earnings and cash flow, the 10 year growth is better than the 5 year growth. This is typical of a lot of companies I have.

For example revenue has grown at 3.2% and 6% per year over the past 5 and 10 years. Cash flow has not grown over the past 5 years and has grown only at 6% per year over the past 10 years.

The debt ratios are very good for this company. This is typical of family owned companies. The current Liquidity ratio is 2.47. This is slightly better than the 5 year median Liquidity Ratio of 2.34. The current Debt Ratio is 3.50. This is also slightly better than the 5 year median Debt Ratio of 3.44. The current Leverage and Debt/Equity Ratios are also very good at 1.40 and 0.40.

The Return on Equity Ratio is good for 2011 at 13.3% and the 5 year median is better at 15.3%. The ROE based on the comprehensive income is similar at 13.2% with a 5 year median ratio of 15.8%. You want the ROE based on the net income and on the comprehensive income to be similar as it generally means that the quality of the net income is good.

I got interested in this stock reading about it in an MPL Communications newsletter. They still follow this stock and still like it. Their web site is called Advice for Investors. I know that I have not done great in this stock, but I feel that it will be a very good long term investment.

This stock is never going to be a high flyer and it will have trouble in any recessionary period. However, over the long term you can expect to earn between 8% and 10% per year, with 3% to 3.5% of the return from 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 Leons. 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.


  1. Hi Sasan,

    Definitely with you on this one!This is the sort of dream stock to keep for the long run. I had my timing good on this one the first time: got in at 11.55 in May 2010 and sold at 14.50 Dec 2010. Now I want in again but I am waiting and hoping for a better entry price (low 11s again?) as I think current price is high (P/E of 12 and P/CF of 10 would be great!). They are in tough now with the lousy economy - so sales and EPS are delining or stagnant in the last two years.

    If I find this entry point, I will stay in longer with the improving economy. Buffet keeps talking about "Mrs. B", the 90-something old Polish woman from the furniture store in Nebraska in his annual letters. If he liked that store so much, I think that he would like Leon's.

    Dividend increase almost every year, so does Book-Value-Per-Share. ROE around 15%. Reasonably stable business, easy to understand. Strong management-ownershow alignment with the Leon family owning the majority of the stock.

    The balance sheet is outstanding; NO debt, no iffy goodwill or ingangible; they OWN their own real estate (look at the plant&property line). It is really a REIT and you get the furniture business in their building for free.

    I'll assess after Q1 results, hope for a quick sell-off to jump in.


  2. Derek Foster discussed Leon's in one of his books. I believe the Idiot Millionaire. He found out that the sales people get paid on commission only, to that reduces expenses.

    He invested in Leon's.