Tuesday, October 28, 2014

Norbord share price fails to hold recent gains

The share price of Norbord (NBD), the giant, multi-national manufacturer of OSB (oriented strand board) and MDF (medium-density fiberboard), dropped at the opening today by more than six percent. I believe Credit Suisse announced it believes NBD will likely cut its dividend after its next 60-cent payout. This talk preceded this morning's price drop.

This came as no surprise. According to the info found on TD WebBroker, the NBD dividend hits a payout ratio of 123.4 percent . Whenever I see this ratio climb above a hundred percent, I fear there is a danger of it being cut. Wait and see.

Norbord has been paying an annual dividend of $2.40 or 60-cents a quarter for a rate of 10.17 percent. Anytime a company pays a dividend in the double digits, I have doubts about the long-term future of the payout. But, doubts or not, I own Norbord. I paid more than I should have -- $26.24 -- but I'm not in too deeply. The loss is quite manageable. And by the time the dividend is cut, if it is, I will have recouped $480 of my investment.  (If the dividend is only halved, I'll be happy.)

Norbord has a checkered history when it comes to paying dividends. If dividends are all that are attracting one to NBD, walk away. Nothing to see here. Nothing but a profitable company, as far as I can see from a quick reading of the net income numbers.

Norbord is a bet on the recovery of the housing market in the States and Europe. For me, the question isn't will the housing market recover, the question is when. When it does, Norbord will be there to profit and I will there for the ride. (Some see NBD eventually hitting $31 or more.)

And if a chap interviewed on BNN is right, the U.S. housing recovery may arrive in 2015. He sees a lot of pent-up demand supported by a steadily improving economy in the States. If he is right, the wait for an NBD recovery may not be all that long.

Here is a link to an article running in Seeking Alpha: Norbord Can Be A Value Play on the US Housing Market.  Note that the writer has a declared entry point: At under $22 he would add to his position.

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