Friday, 8 February 2013

New Purchase - Leon's Furniture


This week, I received a $9,600 bonus. I kept $100 for wine and transferred $9,500 into my TFSA and my wife’s TFSA.

I’ve been looking to add shares of Leon’s Furniture to my 269 shares, bought back in December 2011 for $12.17/share. I like the fact that LNF is a conservatively run company who recently bought its main competitor, The Brick. Moreover, they have made a habit of returning profits to share holders via special dividends.

On the downside, Leon’s has yet to increase its 2013 dividend, which I suspect is due to the purchase of The Brick. And I think they will be negatively affected when Canada’s housing market corrects, but to what extent?

Over the past two weeks, the LNF shares have come down 12%. So today, I bought 131 @ $13.06 ($12.98 + commission), for an initial yield of 3.06%.

This purchase will add $52.40 to my annual dividends. My 12-month forward dividends now sit at $3,729.98.

Below is my analysis of the stock.

Average Dividend Yield Analysis*

LNF-T
Year
High Price
Low Price
1Q
div.
2Q
div.
3Q
div.
4Q
div.
Special Dividend
Annual Dividend
High Yield
Low Yield
2002
$8.75
$5.54
$0.03
$0.03
$0.03
$0.03
$0.13
$0.12
2.17%
1.37%
2003
$7.75
$6.28
$0.03
$0.03
$0.03
$0.04
---
$0.13
2.07%
1.68%
2004
$9.35
$7.10
$0.04
$0.05
$0.05
$0.05
---
$0.19
2.68%
2.03%
2005
$10.63
$8.68
$0.05
$0.05
$0.05
$0.05
---
$0.20
2.30%
1.88%
2006
$13.06
$8.75
$0.06
$0.06
$0.06
$0.06
$0.13
$0.24
2.74%
1.84%
2007
$16.20
$12.18
$0.07
$0.07
$0.07
$0.07
---
$0.28
2.30%
1.73%
2008
$13.14
$7.80
$0.07
$0.07
$0.07
$0.07
$0.10
$0.28
3.59%
2.13%
2009
$10.81
$7.75
$0.07
$0.07
$0.07
$0.07
$0.20
$0.28
3.61%
2.59%
2010
$15.10
$10.35
$0.07
$0.07
$0.09
$0.09
---
$0.32
3.09%
2.12%
2011
$15.65
$10.56
$0.09
$0.09
$0.09
$0.09
---
$0.36
3.41%
2.30%
2012
$13.47
$10.55
$0.10
$0.10
$0.10
$0.10
$0.15
$0.40
3.79%
2.97%
2013


$0.10
$0.10
$0.10
$0.10

$0.40


Stock prices and dividends are per calendar year.
11y ave
2.89%
2.06%
Dividends are recorded in the quarter they were paid.
5y ave
3.50%
2.42%








3y ave
3.43%
2.46%








5y
$11.43
$16.52








3y
$11.66
$16.24







Super Cheap
$11.07



The table shows the 3 year average dividend yield to be 3.43% ((3.09% + 3.41% + 3.79%)/3). I use the numbers in the “High Yield” column for obvious reasons.

Using the current annual dividend of $0.40, one would have to pay $11.66 for a 3.43% yield.

Buying the stock at its low in 2012 would have earned you an initial yield of 3.79%, which corresponds to a stock price of $11.07 (see “super cheap” price in the table above).

Graham Price

LNF’s 2009, 2010 and 2011 EPS were $0.80, $0.90 and $0.78. 3Y Ave EPS = $0.83.
LNF’s BV is $6.26.
Graham Price = SQRT (3Y Ave EPS * BV * 22.5) = $10.79

Cyclically Adjusted Price to Earnings Ratio

LNF’s 10Y Ave EPS = $0.73
CAPE = Stock Price / 10Y Ave EPS = $12.90 / $0.73 = 17.7
A CAPE below 20 is good.

Conclusion

LNF is not necessarily cheap, but I’m betting on conservative and smart management. If the acquisition of The Brick pans out, LNF has a bright future. I view this as a growth play, and not so much as a value play.

EPS rose from $0.49 in 2002 to $0.78 in 2011. 2012 EPS are not in yet, and are estimated to be $1.15. I’ve read that 2013 EPS could reach $1.35. We’ll see how the game plays out.


3 comments:

  1. ADY – for what its worth, most analysts seem to like the Brick purchase, thinking over time it will add value. I had looked at it previously, but I tend to have an aversion to retail and airline stocks in particular, so I took a pass. I was also a little concerned about their dividend policy as it seems to fluctuate with the amount of the special dividend. However, as you point out, for you it is a little more of a growth play, and thus I would suspect you are a little less focused on dividend returns, and perhaps looking for greater capital appreciation.

    I have very few stocks on my watch list right now. One exception is BHP Billiton (BBL-N), which as I mentioned in my last blog post I missed last summer. Another that has caught my eye more recently is Intact Financial (IFC-T), the property and casualty insurer. It yields about 2.8%, has been a good dividend increaser in the last several years, with a payout ratio of around 40% and double digit ROE. Problem is I really don’t want to expand the number of stocks in my portfolio, and not sure there’s anything I want to move out to make room for IFC. However, if that changes, IFC is one I would consider.

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    1. DoD, I liked your last post on averaging down. In the case of Leon's, I've averaged up, which i very rarely do. I am indeed betting on substancial EPS growth over the next few years, which may or may not materialize. I like consistent dividend growth, but for a small portion of my portfolio, I am willing to live with "special dividends" to compensate for lack of dividend growth. I follow Leon's very closely and would not hesitate to sell in the event this acqisition does not pan out.

      I've never heard of IFC before. I'll have a look at it soon. Always nice to hear from you.

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