Friday, July 12, 2013

Dorel Industries Inc

On my other blog I am today writing about Toronto's Mayor ...continue...

I do not own this stock Dorel Industries Inc. (TSX-DII.B, OTC-DIIBF), but I used to. I bought the stock because it was recommended by Investment Reporter of MPL Communications. They have recommended some very good stocks over the years. I bought this stock in 1999 and 2000 and held it until 2006. I sold as I felt that the stock was going nowhere. My loss was 1.2% per year or 7.7% in total. When I held it, it was not paying a dividend.

This stock started to pay dividends in 2007. It has a good record in dividend increases with growth of 16.8% per year over the past 5 years in CDN$ (and 15.8% in US$). They are paying dividends in US$. The last dividend increase was 100% in 2012 in US$. They haven't increased dividend every year, but in most years.

The Dividend Payout Ratios are quite good with the 5 year median at 15.6% for earnings and 10.5% for Cash Flow. Even with the recent increased in dividends; the 2013 DPR for earnings is expected to be at 34.7% and for Cash Flow at 22.1%. These figures are in CDN$.

The problem I see is that Canadians have not made much off this stock. The 5 and 10 year total return for Canadians is at 5.67% and 1.20% per year, respectively. The capital gain portion of this return is 3.69% and 0.20% per year, respectively. The dividend portion of this return is at 1.98% and 1.00% per year, respectively. US investors have done better.

There has been some growth in revenues, earnings and cash flow. For example, cash flow has grown at the rate of 3.6% and 4.2% per year over the past 5 and 10 years. It is, of course, better in US$ than in CDN$. For example, Sales have grown at 9.6% per year over the past 10 years in US$, but at only 5.4% in CDN$.

They have a very strong balance sheet. This is typical of family owned firms. The only problem I see is that intangible and goodwill assets are a high percentage of the market cap at 87%. However, this is better than in 2011 when the intangible and goodwill assets were 119% of the market cap. Often times when these assets are persistently higher than the market cap, there will be a write down of these assets and this is why it can be a problem.

The Return on Equity for this stock used to be higher than 10%, but this has not been true for the last 2 years. The 5 year median ROE is at 9.7%. The ROE for the financial year of 2012 was 8.3%. The ROE for the last 12 months ending in March 2013 is lower at 7.7%.

The ROE on comprehensive income has varied quite a bit from the ROE on net income. The 5 year median difference is with the ROE on comprehensive income being 12.4% lower. This might imply that the quality of the earnings is not as good as they appear. This is just a warning.

When I look at analysts' recommendations, I find Buy, Hold and Underperform recommendations. The consensus recommendation would be a Hold.

When I take a look at my stock price tests, the P/E Ratios test says the stock is reasonable, but towards the high end of the reasonable range. The current P/E Ratio of 10.25 is just below the 5 year median high P/E Ratio of 10.73. The P/B Ratio says that the stock price is reasonable as the current P/B Ratio is 92% of the 10 year median P/B.

The P/GP Ratio price test says the stock price is reasonable as the current P/GP Ratio is the same as the 10 year median P/GP Ratio. The dividend yield test says that stock is cheap as the current dividend yield of 3.38% is 58% higher than the 5 year median dividend yield of 2.13%.

There is a Financial Post column on the first quarterly results of this company. People remark on the good dividend yield of 3.4%. Some analysts think that the stock price is cheap. To me, only the dividend yield test says it is cheap. Usually, I would go by this test; however, they did just recently raise the dividend by 100%, so maybe this is not the best test to use.

The site Proactive Investors talk about the effects of the announcement by Dorel Industries of lower than expected 2nd quarterly results. The Mideast Times site talks about some recent re-ratings by analysts.

Although this stock is up by 37% since I bought this stock, this works out only to 2.37% per year in capital gains over a 13 year period. Even when I considering the median dividend yield over the past 5 years, the dividend would only push my return to 4.5% per year. Better, but I still think that I made the right decision in selling this stock. See my spreadsheet at dii.htm.

Dorel Industries Inc. is a world class juvenile products and bicycle company. Dorel's branded products include Safety 1st, Quinny, Cosco, Maxi-Cosi and Bébé Confort in Juvenile, as well as Cannondale, Schwinn, GT, Mongoose and SUGOI in Recreational/Leisure. Dorel's Home Furnishings segment markets a wide assortment of furniture products, both domestically produced and imported. Dorel has facilities in seventeen countries, and sales worldwide. There concentrated ownership of this company by the Schwartz family (66%) and Segel family (17%). There are two classes of shares, Class A with multiple voting (10) and Class B, with subordinate voting rates (1). Its web site is here Dorel Industries.

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 or StockTwits.

1 comment: