3 Canadian Stocks with Superior Return on Capital

The Canadian stocks we’ve discovered have notable Return on Capital over the past five years with low market volatility

SmallCapPower | December 14, 2020: Return on Capital (ROC) is a ratio that measures how well a company turns capital, such as debt and money invested by shareholders, into profits. In other words, ROC is an indication of whether a company is using its investments effectively to maintain and protect their long-term profits and market share against competitors. Today we have filtered through and found three Canadian stocks with superior return on capital over the past five years, in addition to sales growth over the past two years, as well as low market volatility.

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Enghouse Systems Limited (TSX:ENGH) – $64.63

Enghouse Systems provides enterprise software solutions and has grown through a ‘roll-up’ strategy, typically spending between $20 million to $40 million a year on acquisitions of good-quality software assets at bargain prices, which are used in contact centres, telecommunication networks, transportation systems and for video conferencing. During its third-quarter 2020, Enghouse generated revenue of $131.3 million, up 30% year over year, along with net income for the period that surged 77% to $26.0 million. ENGH stock has a current dividend yield of 0.8% and the Company has increased its dividend for 12 straight years. Enghouse Systems has a five-year cash flow growth rate of 13.7% as well as a five-year earnings per share growth rate of 19.0%. Enghouse’s Return on Capital has averaged 23.4% annually during the past five years.

  • Five-Year Return: 115%

Richelieu Hardware Ltd. (TSX:RCH) – $35.38

Richelieu Hardware is a North American importer, distributor, and manufacturer of specialty hardware and related products. The Company currently has a customer base of kitchen and bathroom cabinetry, storage and closet, home furnishings and office furniture manufacturers, residential and commercial woodworkers, and hardware retailers, such as renovation superstores. Overall, the Company provides 110,000 different items that are designed for its customer base of over 80,000 customers that are served at 72 centers located in North America. During Q3 2020, Richelieu announced a 16% increase in its revenue to $311.2 million, while its diluted net earnings per share surged 56% to $0.50. RCH stock has a current dividend yield of 0.7%. Richelieu’s Return on Capital has averaged 16.9% annually during the past five years.

  • Five-Year Return: 65%

Jamieson Wellness Inc. (TSX:JWEL) – $35.03

Jamieson Wellness has a portfolio of natural health brands. The Company also manufactures and markets sports nutrition products and specialty supplements under its Progressive, Precision and Iron Vegan brands. Since 1999, Jamieson has grown at a compound annual rate of 7.4% and has increased its dividend by 38% since 2017. During Q3 2020, Jamieson Wellness saw its revenue rise 19.2% to $105.6 million, while its adjusted net income increased 33.3% to $12.7 million. JWEL stock has a current dividend yield of 1.3%. The Company’s Return on Capital, meanwhile, has averaged 11.4% annually during the past five years.

  • Three-Year Return: 68%

Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.

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