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October 1, 2019

Dorel Industries (TSX:DII.B) Plunges 32% After Dividend Cut

Disclaimer: The writer of this article may have positions in the securities mentioned in this article. The fact they hold positions in securities has had no impact on the production of this article

By Dan Kent

October 1, 2019

Dorel Industries (TSX:DII.B) stock plunged over 32% today on news that the company has been forced to stop paying a dividend due to U.S. tariffs and their effects on Chinese imports.

The Montreal based company hasn’t seen price levels like this since the mid 1990’s, and third quarter results are expected to be far below analyst estimates.

Investors love dividends, and as such a stock is prone to a massive downswing in the event the dividend is cut. However, Dorel Industries did not only cut its dividend, it completely eliminated it. The company used to pay a quarterly dividend of $0.15, but with an 8.78% yield, it was clear the dividend was getting dangerously high.

There are a lot more problems with Dorel than just its dividend however. While U.S. tariffs have wreaked havoc on the company, revenue has been stagnant for more than 5 years now. The company has posted annual revenue between $2.57 and $2.67 billion on an annual basis over the last 5 years, and gross profits were nearly 10% lower in 2018 than those posted half a decade ago.

If investors didn’t see this dividend slash coming, they should have.

What is the consensus on Dorel Industries now?

Lots of investors think a single day drop like this is a solid opportunity to buy the Canadian stock.

But, I would be avoiding the small cap company at all costs. Dorel is trading at extremely low valuation metrics, which is one of the main reasons why we stress not using these alone. With a price to book of 0.37, a price to sales of 0.08 and a 5 year PEG of 0.71, all signs point to a lot of growth not priced into the stock.

However, with negative profit margins, shrinking revenue and EBITDA and increasing tensions between the United States and China, this may be a stock you want to avoid for now.

What does Dorel Industries do?

Dorel Industries Inc. is a Canadian company that sells juvenile products, bicycles, and furniture. The company operates across North America, East and South Asia, Europe, Oceania, Israel, and South America. Its segments include Dorel Home segment; Dorel Juvenile segment; and Dorel Sports segment. Dorel Juvenile segment generates most of the revenue which is engaged in the design, sourcing, manufacturing, distribution and retail of children’s accessories which include infant car seats, strollers, high chairs and infant health and safety aids. The vast majority of the company’s revenue is generated in North America. Dorel’s major brands include Safety 1st, Maxi-Cosi, and Tiny Love.

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Dan Kent

An active dividend and growth investor, Dan has been involved with the website since its inception. Dan is primarily a researcher and writer here at Stocktrades.ca, and his pieces have numerous mentions on the Globe and Mail, Forbes, Winnipeg Free Press, and other high authority financial websites. He has become an authority figure in the Canadian finance niche, primarily due to his attention to detail and overall dedication to achieving the highest returns on his investments. Investing on his own since he was 19 years old, Dan has compiled the experience and knowledge needed to be successful in the world of self-directed investing, and is always happy to bring that knowledge to Stocktrades.ca readers and any other publications that give him the opportunity to write. Dan manages his TFSA, RRSPs and a LIRA at Questrade, and has compiled a real estate portfolio of his primary residence and 2 rental properties, all before his 30th birthday.

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