Winter Play on Plows and Profits
11/21/2016 9:00 am EST
In a special report on stocks that stand up to higher interest rates, growth and dividend expert John Dobosz, editor of Forbes Dividend Investors, looks at a "winter weather" play on snow-related machines.
Milwaukee-based Douglas Dynamics (PLOW) runs an extremely seasonal business selling snow plows to professional snow removers, but it’s one that’s very focused on the domestic market, with 91% of sales coming from the United States, and the rest from Canada.
That domestic focus is important, because higher interest rates are usually associated with appreciation in the U.S. dollar, which is a negative for companies doing a lot of business overseas.
PLOW has been a star-performer for readers of Forbes Dividend Investor since its initial recommendation on December 3, 2012 at a dividend-adjusted price of $14 per share.
At a recent price of $26.50 per share, the stock has produced a total return of 89%, even after its 17% single-day tumble on November 1, following a disappointing quarterly report.
Douglas recently completed the acquisition of Dejana, a truck up-fitter that Douglas Dynamics is using to plow into the commercial work vehicle segment but dragged on earnings in the most recent quarter.
Douglas’ attachments business serves four-wheel drive vehicles and pick-up trucks with plows that can be removed and reattached, under the Fisher, Henderson, Snowex, and Western brands.
PLOW has paid dividends for most of its existence as a public company, currently at a rate of $0.235 per quarter, good for a yield of 3.6% at current prices.
Douglas also sports the strong value characteristics that originally attracted us to the stock four years ago: big discounts to five-year average valuations along multiple financial ratios.
Be advised that the price of PLOW shares rises and falls not so much with what you see on CNBC, but on the Weather Channel.
The company’s current profit and sales forecasts call for an “average” winter, so if we get a mild one with little snowfall, don’t expect much forward progress in PLOW. If the snowstorms come rolling in, you’ll see the stock respond positively.
By John Dobosz, Editor of Forbes Dividend Investors