Tax Season 2020: Make Tax-Free Income on This 1 Stock!

BMTC Group Inc is a buy-and-hold stock that’s ideal for your TFSA. Here is why you should buy it today.

| More on:
Profit dial turned up to maximum

Image source: Getty Images

BMTC (TSX:GBT) is a hidden gem among the many consumer stocks on the TSX. The company’s subsidiary Ameublements Tanguay and its two divisions Brault & Martineau and EconoMax operate and manage a retail network of electronic, furniture, and household appliances in Quebec.

The company reports a market capitalization of $348 million with a 52-week high of $15.68 and a 52-week low of $9.89.

An interpretation of the numbers

For the six months ended July 31, 2019, the company reported a strong balance sheet with $244 million in retained earnings. This is a good sign for investors, as it indicates the company experienced more years of cumulative net income than cumulative net loss. Further to this, the company reported bank overdraft of $1 million, which means the company is largely self-sufficient — an incredible feat.

Accounts payable are up year over year and accounts receivables are down. From a management perspective, this is the ideal situation, as a decrease in accounts receivables means the company is collecting (which increases cash), and an increase in accounts payable means the company is delaying payments (which also increases cash).

Overall revenues are down slightly from $382 million in 2018 to $364 million in 2019. Although this is not ideal, the company continues to be profitable with after-tax earnings of $10 million in the period (down from $22 million the prior year).

The company finished the year with $11 million cash, which is good.

But wait, there’s more

Looking at the company’s notes to its financials indicates a couple of important items.

Firstly, the company has an unsecured line of credit for $20 million. My interpretation of this is two-fold. Primarily, I am a bit curious as to why the amount is not higher. A higher line of credit may suggest aggressive growth plans for the company in the near future, which would deliver positive returns to investors. At the same time, having a low line of credit suggests the company is relatively self-sufficient. As indicated by the financials, the company has $11 million in cash, which means many initiatives can be self-funded.

Secondly, the company pays a dividend with a current yield of 2.75%. Although this is not a significant dividend, investors should be pleased with this, as the current dividend yield is the highest it has been in the past 10 years. Further to this, the company is very consistent with its dividends, which means investors can rely on the 2.75% increase to their principal.

Foolish takeaway

Even with a potentially volatile 2020 ahead, I believe BMTC is a good stock to buy and hold. That said, investors looking to buy BMTC during the recession are also smart to do so. Given the cyclicality of the furniture industry and its ties to the economy, investors that wait until next year may be able to take advantage of a more favourable price.

Investors looking to diversify their portfolios and purchase shares of a furniture stock should consider buying shares of BMTC. The company is very well managed, as indicated by its positive retained earnings, acceptable cash balance, and the financial prudence of senior management (through the increase in accounts payable and decrease in accounts receivable). BMTC is definitely a good stock to buy and hold.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chen Liu has no position in any of the stocks mentioned.

More on Investing

Airport and plane
Investing

Air Canada – Its Moment Has Come

Air Canada stock got beaten down last year, but today, its prospects are better.

Read more »

Man data analyze
Investing

Here’s the Next TSX Stock I’m Going to Buy

BRP Inc. (TSX:DOO) is a TSX stock I’m looking to snatch up, as the Powersports industry rebounds after the COVID-19…

Read more »

Dividend Stocks

TFSA: How to Invest $88,000 to Get $5,450/Year in Passive Income

Top TSX dividend stocks such as Enbridge can be held in your TFSA to benefit from steady payouts and capital…

Read more »

Arrow descending on a graph
Investing

3 Stocks to Add to Your Portfolio in a Market Pullback

The stock market is in the green, but the upcoming U.S. Fed meeting raises fears of a pullback. Use that…

Read more »

Tech Stocks

Your Future Self Will Thank You for Buying Lightspeed Stock in 2023

Here’s why you may want to add LSPD stock to your portfolio in 2023 to hold it for the long…

Read more »

grow money, wealth build
Bank Stocks

TFSA Investors: A Big Bank Stock That Pays Almost 6% in Dividend Income

A Big Bank stock is an ideal core holding in a TFSA, not only for its financial stability but also…

Read more »

a person watches a downward arrow crash through the floor
Tech Stocks

Don’t Wait for a Market Crash: These 2 Top Stocks Are on Sale

Waiting for a market crash can take away the opportunity to buy early in the market rally while growth stocks…

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Tech Stocks

Have $500? 2 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

Got $500 to invest? Consider buying these stocks that are too cheap to ignore.

Read more »