Thursday, March 3, 2016

Continuing to hold Norbord (OSB)

Norbord has made some changes since I began buying the stock on dips and selling a little on the bounce. For one thing, Norbord has grown. The company absorbed a competitor, Ainsworth Lumber, in a three quarters of a billion dollars deal. Norbord and Ainsworth both had plants spread out across North America producing the particle board panels used in building construction.

As a side note, I believe both Norbord and Ainsworth were controlled by Brookfield Asset Management and Norbord still is. It is no surprise the merger was friendly and not hostile.

With the increased debt load, Norbord cut its dividend. The double digit yield is now less than two percent. This was not unexpected and was not a cause for concern. In fact, it seemed like a sensible business decision and in keeping with past moves by the large, Canadian company. As the demand for oriented strand board increases, the increased debt will disappear from the books. The dividend may be increased.

Norbord has even changed its stock market symbol. It is now a cutesy OSB, oriented strand board, rather  NBD.

With Norbord now heading for $25, I am nicely in the black with this investment. I could sell and pocket a nice profit but I'm going to  hold. I believe Norbord could easily hit $30 in the third quarter of this year with the estimated earnings hitting 47-cents per share. The low estimate is 21-cents and the high is 67-cents.

If Norbord doesn't hit the highs, I believe a dividend increase might well be in the cards. My gut feeling is that Brookfield Asset Management likes to see cash flow from its holdings. An increased dividend will benefit the majority stockholder while not putting Norbord under any financial stress. All the little investors get to ride the profitable coattails of Brookfield.

If I did sell, what would I buy? I might look at Brookfield Asset Management.

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