1 TSX Stock That Is Poised for a Comeback in a Post COVID-19 World

Although a lot of TSX stocks have rallied considerably since March, there are still some high-quality stocks, like Leon’s Furniture, trading extremely cheap.

| More on:
globe with a mask and text coronavirus

Image source: Getty Images

Not many people are buying furniture these days. Spending on furniture is discretionary, and when there’s a pandemic that just refuses to go away, sprucing up one’s home is the last thing on people’s minds. However, this will change as the world slowly gets back to normal.

Leon’s Furniture (TSX:LNF) is one of the most well-known names in the furniture space in Canada. A stable company that has consistently increased its earnings from $83.5 million in 2016 to $107 million in 2019, even Leon’s is not immune to the coronavirus. Its stock fell from over $17 in January to $10.5 in March before stabilizing at $12-$13 levels.

Its results for the first quarter of 2020 were in line with expectations. Revenue was flat at $400 million. Adjusted net income increased to $13.9 million from $9.4 million in Q1 of 2019. The company has access to $300 million of credit, and as of May 2020, Leon’s hadn’t touched this option. One massive arrow in Leon’s arsenal is its entirely owned 4.2 million square feet of real estate portfolio comprising land and buildings.

How this TSX stock is combating COVID-19

The company has said that COVID-19 will impact its Q2 results will severely. Leon’s was quick to take action, laying off 50% of its workforce on March 25 and a further 20% since then. Leon’s has also applied for the Canada Emergency Wage Subsidy, “which will materially contribute towards its cost savings initiatives and allow for more of its temporarily laid off associates to be returned to work in the second quarter of 2020.”

These measures show that the company has been aggressive in saving cash and cutting costs while getting ready to hit the ground running when business returns to normal.

Leon’s revenues have steadily risen over the last decade, going up from just over $700 million in 2010 to $2.28 billion in 2019. That’s a CAGR of 12.4% over 10 years. The furniture market in Canada amounts to revenues of $28.1 billion in 2020. Leon’s has a market share just shy of 10%.

When the pandemic does ebb and businesses are able to get back to regular operations, a lot of consolidation will take place in the space. Weaker players will have to shut shop, and the ones that remain standing will be able to gain a larger piece of the pie. Leon’s is likely to be in the latter group.

Since 2013, Leon’s dividend payout has gone up from $0.4 a share to $0.64 a share. That’s a CAGR of 6.05%. It paid out 41% of its profits and 22% of its free cash flows in dividends last year. These are very comfortable figures for investors, making its forward yield of 3.8% relatively safe.

These numbers show that Leon’s is not a company that pays out excess dividends as its revenues go up. It also means that the company is investing its earnings to grow the business, which will help drive its stock higher over time. Leon’s is a conservative company, and that is a good sign for people looking for a long-term investment.

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.

The Motley Fool recommends LEONS FURNITURE. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

More on Dividend Stocks

Path to retirement
Dividend Stocks

TFSA Investment Strategies: Top Canadian Companies to Add to Your Portfolio

A TFSA stock portfolio can be totally tax-free and more stable if holdings are limited to top Canadian companies.

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

These 3 Canadian Dividend Stocks Are Great Choices for Retirement Income

There’s no shortage of great Canadian dividend to establish a retirement income. Here’s a shortlist of investments to buy today.

Read more »

a person prepares to fight by taping their knuckles
Dividend Stocks

Quebecor Could Totally Disrupt the Big 3 Canadian Telecom Stocks

Quebecor stock can put up a fight against the Big Three Canadian telecoms, but not in the way you'd think!

Read more »

Female friends enjoying their dessert together at a mall
Dividend Stocks

How I’d Invest $300 a Month to Target a $3,000 Yearly Passive Income

Stocks can be a good source of passive income. All you need is to regularly invest in dividend stocks and…

Read more »

Close up shot of senior couple holding hand. Loving couple sitting together and holding hands. Focus on hands.
Dividend Stocks

These 2 Canadian Dividend Stocks Are a Retiree’s Best Friend

These large-cap Canadian dividend stocks can supplement your income post-retirement.

Read more »

edit Balloon shaped as a heart
Dividend Stocks

4 Top Stocks With High Dividend Growth to Buy in 2023 and Hold Forever

Are you looking for stocks you can buy and forget, while they keep giving you returns? Then these high dividend…

Read more »

money while you sleep
Dividend Stocks

2 “SWAN” Dividend Stocks for Passive Income (AKA “Sleep Well at Night” Stocks)

These SWAN dividend stocks are good buys today for passive income. They would be even better buys on further selloffs,…

Read more »

edit Colleagues chat over ketchup chips
Dividend Stocks

Are You 25 or Younger? Invest Just $75 Per Month for $197K by Retirement

Young investors don't need to invest a lot and don't need risky options. Just this one ETF and $75 each…

Read more »