Friday, July 4, 2014

Norbord: My latest investment

Norbord Inc. is one of the world's largest producers of oriented strand board (OSB). This is the board now commonly used in construction to replace plywood. OSB is an upgrade from the older chip board with its random arrangement of small slivers of wood.

Norbord has an annual capacity of 5.1 billion square feet (3/8" basis). It is a big number. The company has 11 OSB mills, a medium-density fibreboard (MDF) mill and two particleboard
mills plus a furniture plant, in Europe I believe. MDF is another staple in home construction today. Painted trim in new homes is often MDF as well as painted kitchen cupboards. I believe MDF can also be used as the core of wood veneer covered sheets.

With 47% of its assets in the United States, Norbord should benefit from a turn around in the American housing market. Another 40% of company assets are in Europe and a final 13% sitting in Canada, as the global economy gains strength Norbord should profit very nicely.

With a dividend of 9.2% calculated on yesterday's stock price, I decided it was as good a time as any to put some retirement money into Norbord. I sold my gold stock, BTO, and my drilling company exposure, CET, and moved the funds into NBD. I bought it yesterday at $26.24 and today it has climbed to $27.10. I have already enjoyed a 3.18% pop in the stock price. Neither BTO or CET are selling today at the prices at which I sold them yesterday. I'm smiling. (A few days after writing this, the Norbord share price dropped dramatically and my win turned to a small loss. Oh well . . . )

Am I confident that NBD will continue to climb. No. Heck, it might even retreat. (It did.) But the dividend plus the position of the company in the economy gives me confidence that this will play out well over the long term.

Is the dividend safe? Personally, I am not counting on it retaining its inflated value through 2015 but it should continue through the remainder of this year without being trimmed. Depending on the size of the dividend, I may make NBD an investment to hold and enjoy indefinitely. (If you do some research, you will discover that Norbord halted its dividend at the depths of the still all-too-recent recession. It has only been relatively recently reinstated.)

I have some funds still sitting uninvested. Unless there are some big changes made at CET, I won't be buying that stock again. But BTO is another matter. If it drops in price, I would consider investing in the little gold producer again. 2015 and beyond have the potential to be very good years for BTO. I'll keep an eye on the little Vancouver-based mining company.

My other recent investments, both REITS -- Chartwell Retirement Residences and Dream Office Real Estate -- have been been a mixed bag. My Chartwell is up more than $500 and pays a nice five percent dividend. The Dream Office I bought for my wife's portfolio is now up $660 but because of the very nice dividend her portfolio has enjoyed growth of more than $1200.

On the downside, the Dream Office (D.UN) that I bought for myself, I paid more for my stock than I paid for my wife's, has been in the red almost from the day I bought it. If I count the dividend, I am in the black but I think it is clear that I paid too much -- at least in the short term. When my D.UN climbs into the black, I may sell and try to find another investment. This will give me a more diverse portfolio and this is one of my core aims.

Addendum: Just about a year ago The Canadian Dividend Blogger posted a take on Norbord. It was a good piece. The CDB is an excellent blog to follow. Here is a link: Turnaround Story.

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