Thursday, August 7, 2014

Dorel Industries Inc.

I do not own this stock of Dorel Industries Inc. (TSX-DII.B, OTC- DIIBF). I am following this stock because I used to own it. I am always curious about what happens to stocks after I no longer hold them. This was a stock recommended by Investment Reporter as a conservative investment. I sold the stock because I had it for 5 years from 1999 and it was going nowhere. I sold in 2006. I bought it in 1999 before I stopped working and at that time I did not mind buying stocks with no dividends.

This stock started to pay dividends in 2007. They are paid in US$ so for a Canadian, the dividends will change with the currency exchange rate when they are paid. This has become a dividend growth stock with dividends growing at the rate of 24.5% and 21.4% per year in US$ terms and at the rate of 25% and 22.9% per year in CDN$ terms.

The dividend yield is moderate with the current dividend yield at 3.38% and the 5 year median dividend yield at 2.44%. So far the dividend growth has been very good as shown above. However, dividend increases have been inconsistent with the last increase being at 100% in 2012. There was no dividend increase in 2013 or so far in 2014. Some years do not have dividend increases. The board has stated that they will declare each dividend and that there is no guarantee that a current dividend payout will be maintained.

The 5 year Dividend Payout Ratios are 18.7% for EPS and 13.7% for CFPS. However, the DPRs have increased over the past 5 years with the ones for 2013 being at 67% for EPS and 28.6% for CFPS. These payouts are in US$ terms and the company's financial statements are in US$ and dividends are paid in US$. Dividends are growing faster than Earnings and Cash Flow and this cannot continue forever.

If you look at total return to the end of last year, the 5 year total return was very healthy, but the 10 year total return not so much. The 5 and 10 year total return to the end of December 2013 was at 12.98% and 4.83% per year. The portion of this total return attributable to dividends was at 2.56% and 1.33% per year. The portion of this total return attributable to capital gain was at 10.42% and 3.50% per year.

However, the total return over the last 5 and 10 years to date is quite lousy. The main problem being that the stock price has declined 11% this year. The 5 and 10 year total return to date was at 4.28% and 1.48% per year. The portion of this total return attributable to dividends was at 2.72% and 1.66% per year. The portion of this total return attributable to capital gain was at 1.56% and a negative 0.18% per year.

The outstanding shares have not changed over the past 5 and 10 years. Shares have increased due to Stock Options and decreased due to Buy Backs. There have also been conversions of Class A Multiple Voting shares to Class B Sub Voting shares. Revenue has grown, but earnings and cash flow have not and this is mainly because 2013 was not a good year for earnings and cash flow for this company.

The Revenue per share is up by 3.25 and 7.9% per year over the past 5 and 10 years. Earnings per share are up by 0.3% and 5.73% per year over the past 5 and 10 years. Cash Flow is down by 2.4% and up by 1.9% per year over the past 5 and 10 years. These figures are all in US$ terms in which the company uses for its annual statements. The company has not done as well in CDN$ terms.

The Return on Equity has not been above 10% for 5 years in the last 10 years and 4 of these years are in the last 5 years. The ROE for 2013 was at 4.3% and has a 5 year median of 8.5%. The ROE on comprehensive income was better for 2013 at 5.1% and it has a slightly less 5 year median at 8.2%.

Debt Ratios are generally quite good. The current Liquidity Ratio at 2.17 is good. The current Debt Ratio at 2.17 is good as is the Leverage and Debt/Equity Ratios at 1.86 and 0.86.

Sound bit for Twitter and StockTwits is: Dividend Growth Stock. The Dividends are moderate in the 2.5% to 3.5% range and increases have been healthy in the 20% per year increases. I do not see that the dividend increases can continue at the past rate. They also currently do not have the growth in revenue, earnings and cash flow to support 20% growth in dividends into the future.

Also, this is a consumer discretionary stock. On such stocks dividends can fluctuate. Some dividend growth stocks are better than others. I can see the dividend yield continue in the 2.5% and 3.5% range, but I would think that dividend growth will slow to a 4 to 5% range. See my spreadsheet at dii.htm.

This is the first of two parts. The second part will be posted on Friday, August 8, 2014 and will be available here. The first part talks about the stock and the second part talks about the stock price.

Dorel Industries Inc. is a world class juvenile products and bicycle company. Dorel's Home Furnishings segment markets a wide assortment of both domestically produced and imported furniture products, principally within North America. Dorel has facilities in seventeen countries, and sales worldwide. Its web site is here Dorel.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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