Stella-Jones Inc. Growth Stock Analysis

What first brought my attention to Stella-Jones Inc. (TSX:SJ) was its dividend growth history. Yes, it only yields 0.9% today, but Stella-Jones has consistently increased its dividend per share at a double-digit rate for the last decade.

So, it wouldn’t come as a surprise that it has been outperforming the market.

railway ties

Stella-Jones’s stable business beats the market

Stella-Jones has been outperforming the market. In the last 10 years, its annualized returns were over 27% while the S&P 500’s  annualized returns were 6.3%.

More impressively, since 2005 when it started paying a growing dividend, the Stella-Jones stock has appreciated 2,800% — a 29-bagger! That is, a $1,000 investment would have turned into $29,000, excluding the dividend paid. In fact, the 2.5% yield in 2005 would have turned into a yield on cost of 21% by 2016!

utility pole

The textbook version of historical average market returns are 10% (after inflation), but even so, Stella-Jones easily outperforms that.

Stella-Jones is a leading North American business that manufactures and sells pressure-treated wood products and related services. Its primary clients are railway companies, electrical utilities, and telecoms. In 2015 almost 80% of Stella-Jones’s sales were railway ties and utility poles.

Over time railway ties and utility poles need to be replaced and Stella-Jones is there to fill that need. The company’s growth area is residential lumber which contributed 27% of its sales in the second quarter, exceeding its sales in utility poles which contributed 25.4%.

Stella-Jones’s dividend growth

Stella-Jones has increased its dividend per share for 11 consecutive years. Its three-, five-, and 10-year dividend growth rates are 27-29%. And its quarterly dividend per share is 25% higher than a year ago. Even when it grows at such a high rate, its payout ratio is still below 17%.

A low payout ratio makes sense for a company whose return on equity (“ROE”) is consistently high. Stella-Jones’s ROE has been 14% or higher in the last decade. A high ROE indicates the management can put capital to better use than paying it out as dividends.


Source: Morningstar

That said, I applaud the company’s ability to grow its dividend at a high rate and certainly as a shareholder, encourage it to continue to do so.

Where does Stella-Jones’s growth come from?

Stella-Jones grows organically but most of its growth comes from its acquisitions and the process of integrating them into the overall business. Stella-Jones’s acquisitions help it to expand its reach and enhance its capabilities to serve its clients better and faster.

Stella Jones Inc. 15 years of net income growth

Source: Stella-Jones 2015 annual report

Recession-proof and long-term returns

Around the financial crisis of 2008-2009, Stella-Jones continued to generate positive earnings per share growth as follows.

2007 2008 2009 2010
16% 10% 5% 2%

Despite the 68% dip, its share price experienced from peak to trough during the financial crisis, shareholders who bought Stella-Jones’s shares at the end of 2007 would have seen their investment return 355% or a return of 19.1% per year.

Since 2007 Stella-Jones’s earnings per share have quadrupled, and its dividend per share have risen more than five times.


Stella-Jones has dipped more than 16% from its 52-week high and all-time high of$54 per share. At under $45 per share, Stella-Jones trades at a 2016 forward price-to-earnings ratio of about 17.6, which is inexpensive for a company that’s expected to continue to grow at a double-digit rate. Any further price dips on Stella-Jones should be seen as a buying opportunity.

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Disclosure: At the time of writing, I am long TSX:SJ.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

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