Stock of the Month Part 7: Chesswood Group Ltd (TSE:CHW) – Alternative Financing isn’t the Sexiest, but can Still be Profitable

Good Day Everyone

Thank you all for joining me for another edition of Stock of the Month. I know I usually get these out on the last day of the month, but last week I was helping Future Mrs. Options2Riches with her main 2017 goal, which I can now happily say is accomplished (more of that on my instagram later tonight).

So back to the topic at hand. I can almost guarantee that most of you reading this edition of Stock of the Month have probably never heard of Chesswood Group, I know I haven’t. I am pretty upset though because I knew I was going to feature this stock last week, but the day after, it was featured as a “Top Pick” on BNN. The clip of that can be found here 

So as always let’s take a look at the company from the top. There three main things that should jump out at you. The first is the market cap which is only around $220 million meaning that it is a very small company. The second is the average volume, which is only at 20,000 shares traded per day. That is extremely low, which means liquidity can potentially be an issue if you intend to trade this stock (which you shouldn’t). The third this is the juicy 6.4% dividend. If you are an income investor and you won’t be selling your shares any time soon, the the first two points won’t be of concern to you as much. Off the top though, these are just some things to keep in mind.

Exhibit 1: Corporate Profile 

Chesswood is an alternative financing company that operates four businesses.

  1. Pawnee Leasing Corporation – Sub $75,000 equipment financing across the US
  2. Blue Chip Leasing Corporation – Small ticket equipment financing in Canada
  3. Windset Capital Corporation – Working capital loans to business up to $150k.
  4. Canadian equipment leasing company for small to mid size equipment finance transactions

So in summary, Chesswood is a company that provides alternative lending to businesses across Canada and the US. I really like this business because interest rates are still very low so that means companies like these are able to access capital relatively cheap, and lend it very profitably to businesses that might not be able to get loans from bigger financial institutions.

Exhibit 2: Risks

Below is a list of the risks that Chesswood faces. Similar to a bank, some of the main risks involve credit losses, interest rates, and economic conditions. With the Trump regime, I believe financial regulation risk will be decreased, and companies like these should operate more easily within the US.

Exhibit 3: Dividends

Here is a table of the dividends in the last 3 years. As you can see, there was recently a dividend increase and a special dividend of $0.50 last year relating to an asset sale. On the Google chart, it shows an even longer dividend history since 2011. I don’t see any reason or indication that would decline change any time soon. I couldn’t find a DRIP program available on their website so I don’t believe there is one.

Exhibit 4: Financial Performance 

Here are the income statements quarterly and a 9 month comparison. You can see nice growth in income from continuing operations which is promising. That combined with the fact that business conditions for the finance/leasing business is still very positive in general in US and Canada makes Chesswood an enticing investment opportunity.

Bottom Line: Chesswood is a small cap alternative financing company that isn’t necessarily for every type of investor. If you desire an above average income  stream in your portfolio and have a medium to high tolerance for risk, this could be a good addition to your portfolio. I hope the Stock of the Month series has helped you make an investment decision at one point or another. As always, I’m always open to investments to be highlighted on Stock of the month, so please feel free to send them to me.

Have a Great Day!

Options2Riches

Twitter: @Options2Riches

Email: options2riches@gmail.com

Facebook Group: https://www.facebook.com/groups/Options2Riches/

Instagram: Options2Riches


Share and Enjoy

  • Twitter
  • Email
  • RSS
  • Pinterest
  • Add to favorites

Leave a Reply

Your email address will not be published. Required fields are marked *