Today, we look at an ambitious growth stock in the Canadian lumber industry. Responding to a question from a Member of his Inner Circle, Pat McKeough examines the prospects of Hardwoods Distribution. The company has seen its revenues and earnings grow as it sells hardwood lumber and plywood to the home construction and renovation market. An improving U.S. residential housing market and a sound balance sheet should let Hardwoods invest in its operations or make acquisitions. While the company also raised its dividend recently, Pat thinks this stock is suitable for aggressive investors only.
Q: Pat: Thanks for your continuing excellent advice. Could you please comment as to whether Hardwoods Distribution is a good buy at this time? Regards.
A: Hardwoods Distribution Inc., (symbol HWD on Toronto; www.hardwoods-inc.com) is one of North America’s largest distributors of high-grade hardwood lumber and plywood.
The company mainly purchases these products from hardwood lumber mills and sells them in the home construction, renovation and institutional markets. It operates through 33 distribution centres across Canada and the U.S.
Hardwoods converted from an income trust to a conventional corporation in July 2011.
In April 2014, the company acquired Hardwoods of Michigan, a producer, distributor and exporter of hardwood lumber, for $15.0 million U.S.
Hardwoods’ revenue rose 20.4% in the three months ended June 30, 2015, to a record $143.4 million from $119.0 million a year earlier. Hardwoods of Michigan contributed $2.2 million to the company’s sales in the latest quarter, while the lower Canadian dollar enhanced revenue from its U.S. operations, which supplied 64% of the total.
Earnings gained 25.4%, to $5.0 million, or $0.30 a share, from $4.0 million, or $0.24.
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Growth stocks: Hardwood’s raises dividend by 22% for a yield of 1.3%
The company recently raised its quarterly dividend by 22.2%, to $0.055 a share from $0.045. The new annual rate of $0.22 yields 1.3%.
Hardwoods’ balance sheet is strong: it has no long-term debt. That gives it plenty of room to make more acquisitions or invest in its current operations.
The company should be able to sustain its sales and earnings growth, particularly as the U.S. residential construction market continues to improve.
Hardwoods Distribution is okay to hold for aggressive investors who want exposure to U.S. housing markets.
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