Friday, July 29, 2016

Dorel Industries Inc.

Sound bite for Twitter and StockTwits is: Price probably reasonable. However, price may not be as reasonable as it might appear. The P/GP Ratio test shows the price a bit high and the dividend yield test may not be a good one for this stock. This is not a dividend growth stock. You should also note that lots of consumer discretionary companies are having a hard time in the long slow recovery. See my spreadsheet on Dorel Industries Inc.

I do not own this stock of Dorel Industries Inc. (TSX-DII.B, OTC-DIIBF) but I used to. 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 in 2006 because I had it for 7 years from 1999 and it was going nowhere. I bought this stock before I stopped working and at that time I did not mind buying stocks with no dividends.

This stock did not have a dividend when I held it. It started to pay dividend in 2007 around 9 years ago. They report in US$ and do business in the US. Their dividend is paid in US$. They have increased their dividends in some years quite nicely, but they are inconsistent and here has been no dividend increase since 2013. In US$ terms the dividends have grown by 15.9% and 15.7% per year over the past 5 and 10 years.

Also I should point out that the dividend increases came at the expense of the Dividend Payout Ratio for EPS. Over the last 3 years the DPR has been 67%, -181% and 152%. Analysts expect that the DPR for EPS would be around 54% for 2016. This is in US$ terms.

I think that they would have been better off with a lower DPR for EPS and they should have kept the DPR low. I think that they should have only modestly increased the dividend each year. They are a consumer discretionary stock and their EPS tends to vary from year to year. EPS varying year to year is not unusual.

Their dividend yield is good. The current dividend is 4.19% in US$ terms based on a stock price of $28.67 and dividends of $1.20. The dividend is 4.20% in CDN$ terms based on a stock price of $37.69 and dividends of $1.58. You are going to get small variants in dividend yield between CDN$ and US$ due to the currency exchange. Problem I see is that as an investor it is hard to know where they are going with the dividends. They should have realized that the EPS would fluctuate as they always had in the past.

The last couple of years have not been all that good for this company. Sometimes using the 5 year running averages can put things is better perspective. It can show if there has been any growth over the past 5 year when a company has recent problems. The 5 year running averages for the past 5 years compare the average for the past 5 years to the average for past years of 6 to 10. The 5 year running averages for the past 10 years compare the average for the past 5 years to the average for the past years of 11 to 15. All the figures are in US$ unless otherwise stated as this company reports in US$.

The Revenue is up by 3% and 4.3% per year over the past 5 and 10 years. If you look at 5 year running averages the growth is up by 5.1% and 6.8% per year. The 5 year running averages are better, but growth is still moderate.

Earnings per Share are down by 27% and 12% per year over the past 5 and 10 years. For the 5 year running averages, the figures are less bad at declines of 12.3% and 4.7% per year. Analysts expect EPS growth to be much better in 2016 with a growth of 182% to $2.23 EPS. If you look at Q1 2016 EPS, EPS is up by 41%. This is a start. However, for 2015 EPS was expected to be $1.94 and it came in at $0.79.

Cash Flow declined by 1.4% and increased by 1.6% over the past 5 and 10 years. The 5 year running averages show growth of 2.7% and 5.2% per year over the past 5 and 10 years.

Return on Equity has been low lately with ROE for 2015 at 2.3% and 5 year median ROE at 4.3%. However, comprehensive income for 2016 is negative. The ROE for Comprehensive Income for 2015 is a negative 6.1%. This makes you wonder about the quality of the earnings. (Note with ROE it does not matter if I use US$ or CDN$, the results will be basically the same.)

These P/E Ratios are using CDN$. The 5 year low, median and high median Price/Earnings per Share are 7.35, 9.36 and 11.38. The corresponding 10 year values are 7.46, 9.03 and 10.67. The historical values are 7.35, 12.16 and 14.80. The current P/E Ratio is 12.83 based on a stock price of 37.69 and 2016 EPS estimate of $2.94 (CDN$ or $2.23 US$). This stock price testing suggests that the stock price is relatively expensive. (Note the P/E Ratios in US$ are similar with 5 year values at 7.33, 9.33 and 11.34.)

I get a Graham Price of $55.28 CDN$. The 10 year low, median and high median Price/Graham Price Ratios are 0.54, 0.63 and 0.72. The current P/GP Ratio is 0.68 based on a stock price of $37.69 CDN$. This stock price testing suggests that the stock price is relatively reasonable but above the median.

I get a 10 year Price/Book Value per Share 0.81. The current P/B Ratio is 0.82 a values some 1% higher. The current P/B Ratio is based on BVPS of $35.07 CDN$ and a stock price of $37.69 CDN$. This stock price testing suggests that the stock price is relatively reasonable and around the median.

The current dividend yield is 4.20% based on dividends of $1.58 CDN$ and a stock price of $37.69 CDN$ . The historical (sort of, but only covering 9 years) dividend yield is 2.51%. The current dividend yield at 4.2% is some 67% higher. This would suggest that the stock price is getting relatively cheap. However, this is not much data and the dividend has been rammed up with no corresponding increase in EPS.

When I look at analysts' recommendations I find Buy and Hold, but the vast majority are a Hold. The consensus would be a Hold. The 12 month stock price consensus is $33.83 CDN$ ($25.67 US$). This implies a total return of a loss of 6.05% with a capital loss of 10.25% and dividends of 4.20%.

Camille Ainsworth talks about recent analysts calls on Fiscal Standard. Will Ashworth on Motley Fool says why he likes this stock. I do not know where he got the dividend growth by 10% per year over the past 5 years, but this completely ignores the fact that dividends have not grown since 2013. Dorel recently lost a court case over one of their children car seats in Texas as reported in Bloomberg.

I will have only one entry for this stock this year. However, I did a more complete report on this company in 2015 and you can see those reports here and here.

The last stock I wrote about was about was Canam Group Inc. (TSX-CAM, OTC-CNMGA)... learn more. The next stock I will write about will be Pulse Seismic Inc. (TSX-PSD, OTC-PLSDF)... learn more on August 2, 2016 around 5 pm.

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. There concentrated ownership of this company by the Schwartz family (66%) and Segel family (17%). Its web site is here Dorel Industries Inc.

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. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits.

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