Who said ‘buy and hold’ is dead? SmallCapPower.com takes a look at some Canadian companies that have rewarded patient investors that have held its shares over the past decade. Examining what has made these companies successful will hopefully help one find the next big winning stock for their portfolio.
Stella-Jones Inc. (TSX: SJ): 2,778.1% share price appreciation
Most parents will tell their children that money doesn’t grow on trees. What they likely didn’t explain, though, is that trees can grow money – lots of it, especially if you were a long-term shareholder of Stella-Jones.
Stella is probably the most successful Canadian company that most investors have never heard of, let alone know what it does. SJ manufactures pressure-treated wood products for use as railway ties and utility poles, and has plants and operations in five Canadian provinces and 17 U.S. states.
Not an exciting business, for sure, yet one that has been wildly profitable for this Quebec-based firm. Stella-Jones recorded its 13th consecutive year of net income growth in 2013. During the past 10 years its earnings have soared from $3.8 million in 2003 to $92.5 million in 2013 and its revenue has climbed from $92 million to $970 million over that same decade, compounding at an annual rate of about 25% since the company’s inception.
In addition, Stella’s Return on Equity has averaged about 18% each year since 2009, up from just 10% in 2003. The company also began paying a dividend that has increased for nine consecutive years, including a 122% surge in its payout over the past five.
Stella’s success seems to have been built using a solid mix of strategic acquisitions, organic growth, and the avoidance of getting ‘drunk’ on corporate debt. The company made, on average, one key acquisition each year from 2000 until 2012, buying utility pole and railway tie manufacturers as well as wood treatment businesses as a way of expanding its production and distribution network in different regions throughout North America.
As a result, more than 78% of its sales now come from the United States. And, it is estimated that Stella receives 40% of the North American wood railway tie business and 30% of all orders for wood poles.
In a Financial Post interview from July of last year, Stella-Jones CEO Brian McManus said he believes the utility pole industry is entering 15 to 20-year major replacement cycle, as most were erected more than 60 years ago following the expansion of cities with the suburbanization of North America. He also suggested that his company’s payout ratio, currently about 20% of net income, could climb to as high as 50% as Stella’s business matures and it looks for ways to deploy cash.
Read more top performing Canadian stock articles:
http://www.smallcappower.com/posts/article-top-performing-canadian-stocks-over-10-years-18-7-2014
http://www.smallcappower.com/posts/aricle-top-performing-canadian-stocks-june-2014
http://www.smallcappower.com/posts/article-top-performing-canadian-stocks-16-5-2014
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