Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



CAPScall of the Week: Douglas Dynamics

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

For years, satirical late-night-TV host Stephen Colbert has been running a series on his show called "Better Know a District," which highlights one of the 435 U.S. congressional districts and its representative. While I am no Stephen Colbert, I am brutally inquisitive when it comes to the 5,000-plus listed companies on the U.S. stock exchanges.

That's why I've made it a weekly tradition to examine one seldom-followed company within the Motley Fool CAPS database, and make a CAPScall of outperform or underperform on that company.

For this week's round of "Better Know a Stock," I'd like to take a closer look at Douglas Dynamics (NYSE: PLOW  ) .

What Douglas Dynamics does
Douglas Dynamics manufactures and sells snow and ice control equipment like snowplows, sand and salt spreaders, and other related accessories, under the Western, Fisher, and Blizzard brands for light trucks in North America.

In Douglas Dynamics' third quarter, which was reported earlier this month, the company noted a 29% decline in total quarterly sales to $37.8 million, which it attributed to record-low snowfall and drought levels, which negatively affected both its snow product sales, as well as its customers' investments in the company's products. 

Whom it competes against
Douglas Dynamics doesn't have too many competitors anywhere near its size. Instead, its biggest competitor tends to be the weather trends themselves.

These record-low levels of snowfall not seen in the past 50 years have crippled many winter-related companies. Snowmobile and ATV makers Arctic Cat (Nasdaq: ACAT  ) , Polaris Industries (NYSE: PII  ) and even to some extent, Honda Motor (NYSE: HMC  ) have been able to grow snowmobile sales thanks to new and innovative designs, but growth has definitely slowed from previous years. These three companies have also turned to multiseason ATV growth to boost their bottom line and, in Honda's case, its extensive line of vehicles as well.

Ski destination Vail Resorts (NYSE: MTN  ) has been another casualty, with EBIDTA dropping 4% from the prior year as price increases didn't quite make up for the record low snowfall.

In addition to record-low snowfall levels, record drought levels, according to management, hampered professional plowers who often turn to landscaping during the warmer summer months to earn enough money to invest in plowing products come winter. In short, dry weather is Douglas Dynamics' ultimate enemy -- not necessarily the businesses it competes against.

The call
After carefully reviewing the prospects for Douglas Dynamics, I'm going to play the role of weatherman and make a CAPScall of outperform on the company.

To me, this seems like a pretty straightforward call, given that we've witnessed extremely low snowfall and very low rainfall in 2012. Simply playing on the averages we've witnessed in snowfall and rainfall over the past 100 years, you'd see that this year is far outside the norm and thus not truly indicative of what Douglas Dynamics is capable of. It's also going to give Douglas some ridiculously easy comparisons next year if we return to normal snow and rainfall levels.

Another factor I haven't mentioned yet is the company's impressive dividend. Douglas' dividend, which is currently paying out 6.1%, probably isn't sustainable at current levels, but the company has made it clear that rewarding shareholders through quarterly stipends is in its plans going forward.

As long as North American GDP is rising and the weather in that region returns anywhere close to normal, then Douglas Dynamics at 17 times forward earnings and yielding 6% makes a heck of a lot of sense to me!

If big, stable dividends are what you like served up for dinner, then our latest special report on three Dow Jones dividend payers that you need in your portfolio could be right up your alley. Click here to get your free copy and find out which three Dow components our analysts are abuzz about.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2129382, ~/Articles/ArticleHandler.aspx, 10/27/2016 11:00:26 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,188.34 -10.99 -0.06%
S&P 500 2,136.00 -3.43 -0.16%
NASD 5,235.65 -14.62 -0.28%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/27/2016 10:43 AM
PLOW $31.90 Down -0.40 -1.24%
Douglas Dynamics CAPS Rating: *****
ACAT $14.19 Down -0.09 -0.63%
Arctic Cat CAPS Rating: ***
HMC $29.93 Down -0.01 -0.03%
Honda Motor CAPS Rating: ****
MTN $154.51 Down -1.61 -1.03%
Vail Resorts CAPS Rating: ****
PII $75.95 Down -0.65 -0.85%
Polaris Industries CAPS Rating: *****