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Home Depot Inc. (The) (HD)
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Lowe's Companies Inc. (LOW)
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McDonald's Corporation (MCD)
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Dollarama Inc. (DOL)
Very high debt., - BV, dividend increase meagre and a ROE of 800+ - how is this possible with huge debt. - requiring cash flow to support it?
Find fundamentals confusing to say the least.
DOL has net debt of $2.9B, and equity of around $161M. The debt level is high compared to equity, but not too high relative to earnings power: net debt/EBITDA is around 2.6x, which is fair for a predictable business.
DOL has Negative book value as the company consistently repurchased shares over the years and the repurchased price was higher than the issued price in the past, as the company grew significantly over the years. Great businesses are the ones that do not need equity capital (companies such as MCD, HD, and LOW)
DOL’s dividends grew just slightly, as the company’s main way to return capital is through buybacks, whih we like it as it is tax-efficient. Lastly, ROEs may not be an appropriate metric to evaluate a business like DOL, we think Return on Invested Capital (debt + equity) is a better one.
Overall, accounting figures may confuse investors, what matters for investors is the underlying fundamentals of the business, and we think DOL is great business to own.