Are H&L dividend days back?
HARDWARE and Lumber's 30 cents-a-share dividend payment next month is the second annual payout in a row following a four-year drought which was brought on by losses.
What's more, the dividend, which is still shy of the 32 cents paid in 2007 before the company's bottom line was dragged into the red, will be 2.4 times last year's payment and will represent a 7.1 per cent return on the stock's 10-day moving average price of $4.20.
Before 2007, Hardware and Lumber skipped dividend payments in lower profit years, like in 2005 and 2006, but the five consecutive payments before that totalled over a dollar a share when combined.
The latest announcement might signal a return to regular payments, especially in light of more favourable earnings, although it might be hard for new investors to get in on the action given that trading of shares doesn't happen often while the top ten shareholders own 91.4 per cent of the shares.
However, Hardware and Lumber has been posting positive results since 2010, after incurring losses of $486 million over the two years prior, even though restating last year's accounts to meet an international accounting standard lowered 2012's earnings from $27 million to $2.8 million.
Nevertheless, the retail chain, which operates Rapid True Value and AgroGrace, posted just under $90 million in net profit for the nine months to September 30, compared to less than $1 million in the corresponding period last year.
The improved performance reflected a 7.4 per cent increase in revenue, from $4.66 billion for the first nine months of 2012 to $5 billion during the comparative period this year.
Gross margin also rose from 25.4 per cent to 26 per cent, while finance costs were more than halved from $53 million in the nine months to September 30, 2012, to $22.8 million during the first nine months of 2013.
Another important factor was that inventory levels fell to $1.13 billion, or the equivalent of 11.8 weeks of sales at the end of September from $1.27 billion (approximately 14.3 weeks) a year before.
On the other hand, the company's household hardware and building products division posted a higher loss during the first nine months of 2013 compared to the corresponding period last year — $79.3 million, up from $73 million.
Moreover, Rapid True Value hasn't seen a profit since 2007.