Tax Season 2020: Make Tax-Free Income on This 1 Stock!

BMTC Group Inc is a buy-and-hold stock that’s ideal for your TFSA. Here is why you should buy it today.

| More on:

BMTC (TSX:GBT) is a hidden gem among the many consumer stocks on the TSX. The company’s subsidiary Ameublements Tanguay and its two divisions Brault & Martineau and EconoMax operate and manage a retail network of electronic, furniture, and household appliances in Quebec.

The company reports a market capitalization of $348 million with a 52-week high of $15.68 and a 52-week low of $9.89.

An interpretation of the numbers

For the six months ended July 31, 2019, the company reported a strong balance sheet with $244 million in retained earnings. This is a good sign for investors, as it indicates the company experienced more years of cumulative net income than cumulative net loss. Further to this, the company reported bank overdraft of $1 million, which means the company is largely self-sufficient — an incredible feat.

Accounts payable are up year over year and accounts receivables are down. From a management perspective, this is the ideal situation, as a decrease in accounts receivables means the company is collecting (which increases cash), and an increase in accounts payable means the company is delaying payments (which also increases cash).

Overall revenues are down slightly from $382 million in 2018 to $364 million in 2019. Although this is not ideal, the company continues to be profitable with after-tax earnings of $10 million in the period (down from $22 million the prior year).

The company finished the year with $11 million cash, which is good.

But wait, there’s more

Looking at the company’s notes to its financials indicates a couple of important items.

Firstly, the company has an unsecured line of credit for $20 million. My interpretation of this is two-fold. Primarily, I am a bit curious as to why the amount is not higher. A higher line of credit may suggest aggressive growth plans for the company in the near future, which would deliver positive returns to investors. At the same time, having a low line of credit suggests the company is relatively self-sufficient. As indicated by the financials, the company has $11 million in cash, which means many initiatives can be self-funded.

Secondly, the company pays a dividend with a current yield of 2.75%. Although this is not a significant dividend, investors should be pleased with this, as the current dividend yield is the highest it has been in the past 10 years. Further to this, the company is very consistent with its dividends, which means investors can rely on the 2.75% increase to their principal.

Foolish takeaway

Even with a potentially volatile 2020 ahead, I believe BMTC is a good stock to buy and hold. That said, investors looking to buy BMTC during the recession are also smart to do so. Given the cyclicality of the furniture industry and its ties to the economy, investors that wait until next year may be able to take advantage of a more favourable price.

Investors looking to diversify their portfolios and purchase shares of a furniture stock should consider buying shares of BMTC. The company is very well managed, as indicated by its positive retained earnings, acceptable cash balance, and the financial prudence of senior management (through the increase in accounts payable and decrease in accounts receivable). BMTC is definitely a good stock to buy and hold.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chen Liu has no position in any of the stocks mentioned.

More on Investing

engineer at wind farm
Energy Stocks

Invest $20,000 in This Dividend Stock for $100 in Monthly Passive Income

This dividend stock has it all – a strong outlook, monthly income, and even more to consider buying today.

Read more »

Hourglass and stock price chart
Stock Market

It’s Not Too Late: Invest in These TSX Growth Stocks Now

Solid fundamentals of these top TSX growth stocks could help them maintain strong upward momentum in the years to come.

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

stocks climbing green bull market
Stocks for Beginners

3 TSX Stocks Soaring Higher With No Signs of Slowing

Don't ignore stocks just because they look like they're at a high price. Instead, see exactly why they've driven so…

Read more »

dividends can compound over time
Bank Stocks

Is TD Bank Stock a Buy for Its 5.2% Dividend Yield?

TD Bank stock offers a rare 5.2% dividend yield—can it rebound from challenges and reward contrarian investors? Here's what to…

Read more »

chart reflected in eyeglass lenses
Investing

How Should a Beginner Invest in Stocks? Start With This Index Fund

This Vanguard index fund is the perfect way to start a Canadian investment portfolio.

Read more »

analyze data
Bank Stocks

Is BMO Stock a Buy for its 4.7% Dividend Yield?

Bank of Montreal is up 20% since late August. Are more gains on the way?

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »