Leon’s Furniture continues to pay investors regular dividends with above-average yields. Its leading positions in a niche (but key) market continues to spur earnings, and that gives it more room to keep raising your dividend.
We’re highlighting this because dividend investors tend to avoid small cap stocks over concerns that they are riskier than bigger firms. However, you can cut than risk with high-quality firms such as this one.
Not only is its core business strong, but the company is also planning a REIT spinoff of 429 acres of prime real estate holdings. This represents a major catalyst for share price appreciation.
Meanwhile, the stock trades at 12.8 times the company’s forward earnings forecast.
LEON’S FURNITURE LTD. (Toronto symbol LNF; www.leons.ca) sells furniture and appliances through 299 stores, mainly under the Leon’s and The Brick banners. Franchisees operate 98 (32.8%) of those outlets.
Leon’s has built its chain of furniture stores on four main strengths: a huge selection of furniture, appliances and electronics; a lowest price guarantee; strong after-sales service; and aggressive TV, radio and print advertising.
With the October 2024 payment, the company raised your quarterly dividend by 11.1% to $0.20 a share from $0.18. The new annual rate of $0.80 yields a solid 3.0%.
In the third quarter of 2024, Leon’s sales declined 1.4%, to $661.0 million from $662.2 million a year earlier. Same-store sales also fell 1.4%. Those drops are due to weaker consumer spending on non-essential goods due to higher interest rates and inflation. Overseas shipping disruptions also hurt inventory levels.
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Earnings fell 28.0%, to $0.54 a share (or a total of $37.2 million) from $0.75 a share (or $51.7 million). That also missed the consensus estimate of $0.55 a share. If you factor out a one-time gain in the year-earlier quarter, earnings rose $700,000, or $0.01 a share, in the latest quarter.
As of September 30, 2024, the company held cash of $125.0 million, while its long-term debt of $82.5 million is a moderate 5% of its market cap.
Value Stocks: Leon’s major REIT spinoff on the way to unlock real estate treasure
Leon’s still plans to transfer its real estate holdings, which total 429 acres across the country, to a real estate investment trust (REIT) that it aims to set up. It then plans to hand out units in the REIT to its shareholders or sell units to the public through an initial public offering. The company will probably complete the spinoff in 2025.
As part of that plan to unlock the value of its real estate, Leon’s will also re-develop 40 acres of its land in central Toronto.
Under the proposal, that parcel of land will house its new corporate headquarters and a flagship retail store. The company will also build 4,000 residential housing units, including townhouses and apartment buildings.
Leon’s expects to begin construction in 2025 or 2026. It has not yet said how much this project will cost.
The company’s earnings will probably improve from $2.00 a share in 2024 to $2.11 in 2025. The stock trades at an attractive 12.8 times that 2025 estimate.
Recommendation in The Successful Investor: Leon’s Furniture Ltd. is a buy.
