Leon's Furniture Ltd.

On my other blog I am today writing about possible cheap dividend stocks for May 2015 continue...

Sound bite for Twitter and StockTwits is: Dividend Growth Retail Stock. However, Leon's has always been rather inconsistent in dividend increases. But on the other hand it has also paid some good special dividends when they could afford to do so. See my spreadsheet at lnf.htm.

I own this stock of Leon's Furniture Ltd. (TSX-LNF, OTC-LEFUF). I had some money in 2006 and this stock has been on MPL Communication's Investor Reporter list for some time. It was also on Mike Higgs' Dividend Growth Stock list. I bought some in 2006 and then some more in 2008, 2009 and 2010.

This stock has grown its dividend over the years. The problem is that the dividend has been level since 2012. This is not the first time this has happened as they do not raise dividends every year. The 5 and 10 year dividend growth is decent at 7.4% and 8% per year. They did do a special dividend in 2012. This company has a habit of doing special dividends every so often when they feel that can afford to.

The Dividend Payout Ratios are fine. Last year the DPR for EPS was at 41.7% and for CFPS at 42.4%. The 5 year median DPRs are at 46% for EPS and 45.7% for CFPS. They are expected to be at 37% for EPS and 26.7% for CFPS in 2015 is dividends do not change.

I have made a total return to date of 6.55% per year on this stock. The portion of this return from dividends is 3.16% per year and the portion from capital gains is 3.39% per year. The 5 and 10 year total returns are 3.62% and 9.04% per year. The portion of these returns from dividends is 2.87% and 3.61% per year. The portion of these returns from capital gains is 0.75% and 5.43% per year.

This stock was doing much better at the end of 2014. At that time the 5 and 10 year total returns was at 14.54% and 10.57% per year. However, this stock has fallen by 14.2% so far this year.

Over the past 5 and 10 years the outstanding shares have grown at 0.2% and decreased at 0.3% per year. Shares have been increased by the conversion of insider non-voting shares and decreased with Buy Backs. Employees can acquire convertible non-voting shares under an Employee Plan.

The Revenues have grown well over the past 5 and 10 years. The growth in Earnings and Cash Flow is moderate over these periods. For Earnings and Cash Flow, if you look at running 5 year growth, the growth is quite low. I should also note here that Leon's has recently bought The Brick another furniture company.

Revenue is up by 22.9% and 13.8% per year over the past 5 and 10 years. Revenue per Share is up by 22.7% and 14% per year over these periods.

EPS is up by 4.2% and 4.8% per year over the past 5 and 10 years. If you look at 5 year running averages over the past 5 years, the growth in EPS is just 1.5% per year.

Cash Flow is up by 3.6% per year over the 5 and 10 years. Cash Flow per Share is up by 3.6% and 3.4% per year over the past 5. However, if I used 5 year running averages over the past 5 years, CFPS has only increased by 0.6%. They probably need better cash flow to increase the dividends.

One problem is the EPS/CF Ratio. It has been above 1.00 for the last three years and is at 1.02 for 2014. UC-Berkeley accounting professor Richard Sloan has written about this ratio and says that companies with a EPS/CF below 1.00 tend to do better than companies with a EPS/CF above 1.00.

I have tracked the Return on Equity since 1995. It has been above 10% every year since that time. The ROE for 2014 is at 14.5% and the 5 year median value is 13.5%. The ROE on comprehensive income is 14.5% with a 5 year median of 13.2%. When the ROE on comprehensive income confirms the ROE on net income, it suggests that the earnings are of good quality.

The debt ratios have generally been good, but they have varied a lot over time. In 2014 the Liquidity Ratio is 1.04. If you add in Cash Flow after dividends it is 1.34. Not great but an improvement over last year's ratio of 0.96 and 1.09 respectively. The 5 year median values are 2.47 and 2.76, respectively.

The Debt Ratio is 1.50. Here again this is an improvement over last year's ratio 1.42. This ratio is also usually much better as it also has a high 5 year median of value of 3.50. The Leverage and Debt/Equity Ratios for 2014 are 2.99 and 1.99. This is an improvement over 2013's ratios of 3.39 and 2.39. The 5 year median values for these ratios are also better at 1.46 and 0.46.

This is the first of two parts. The second part will be posted on Tuesday, May 05, 2015 and will be available here. The first part talks about the stock and the second part talks about the stock price.

Leon's Furniture Limited is a Canada-based company is retailer of home furnishings, electronics and appliances across Canada from Alberta to Newfoundland and Labrador. Leon's sells under several banners including Leon's, The Brick, Appliance Canada and United Furniture Warehouse. Its web site is here Leon's.

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.

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