Stellar Numbers with Unknown Growth in Sight

Stella-Jones is a leading producer of industrial pressure-treated wood products in North America. The company manufactures and distributes railway ties, utility poles, residential lumber, and industrial wood products across the continent.

By products, industrial poles account for 34% of the company’s overall revenue, followed by railway ties (31%), residential lumber (22%), logs and lumber (8%) and industrial products (5%). The U.S. accounts for nearly 70% of total Stella-Jones’ sales, while Canada constitutes the remaining 30%. The company also has a small presence in Latin and South American markets.

The company operates 40 wood-treating facilities, finished goods yards, 12 pole peeling operations and an extensive distribution network across North America. These facilities are located in six Canadian provinces and nineteen American states. It provides a wide range of residential lumber and accessories to retailers for outdoor applications and specialized wood products for industrial applications.

The company is known for its premium products and services, agile operations, secured supply chains and prompt delivery anywhere on the continent.

Investment Data

Revenue Growth & Market Exposure

Stella-Jones has come a long way from humble beginnings as a four-plant wood-treating unit in 1992 to a leading North American lumber and pole supplier operating 40 facilities today. North America’s largest railroads, telecom providers, electrical transmission utilities and residential retail market are Stella-Jones leading customers. The company also caters to residential and industrial marketplaces.

Stella-Jones is a leading supplier of critical components of the economy’s physical infrastructure. Stella-Jones’ poles are made from a variety of premium wood species to suit different climates and unique customers’ specifications across the continent.

The company is expanding its geographical presence, increasing its capacity, strengthening its networks, and investing in quality acquisitions. It acquired Prairie Forest Products which manufactures treated wood utility poles and residential lumber, and Wood Preservers Inc. a producer of marine and foundation pilings and treated utility poles in 2018.

The company successfully increased its sales for the 18th consecutive year and crossed the two billion-dollar mark in 2018. Residential lumber sales have grown from just 10% of its overall product mix in 2014 to 22% of total sales in 2018. Its third quarter result was marked by strong sales growth and improved operating margins on a sequential basis.

Stella-Jones could gain from cross-selling opportunities in its core markets. The company is expecting to benefit from improved pricing, increased demand in the railway tie product category, residential lumber and the rising demand for utility poles. It is also anticipating 2019 sales to increase as a result of acquisitions.


Stella-Jones raised its dividend for the 14th consecutive year to $0.48 per share, returning $33.3 million to shareholders in 2018. The company repurchased common shares for $4 million. It sports an annual average yield of 1.2% and a very low payout ratio of 27%. Stella-Jones is a Canadian Dividend Aristocrat. The company last raised its dividend by over 16.7% and has been compounding its dividend growth by 18.9% CAGR over the last decade.

Strong cash flows have helped the company to grow its business, both organically and through acquisitions while providing a solid return to shareholders. The company is also focusing on network expansion to improve efficiencies and increase its capacity.

The company has a strong reputation for reliable and consistent services. This has resulted in sticky customer relationships. A majority of Stella-Jones’ sale of utility poles are through multi-year contracts and public tenders which provides visibility and stability of cash flows. The company also benefits from steady demand for its core products in the form of regular maintenance of railway ties and utility pole product categories, which are integral to the North American basic transportation and utility infrastructure.


West Fraser Timber, Canfor Corp, Norbord Inc., Interfor Corp, and Western Forest Products Inc. are Stella-Jones’ top competition. Stella-Jones’ strong focus on customer satisfaction, core products, and key markets provide it an edge over the competition.

A strong balance sheet, extensive distribution and manufacturing network across North America, stable source of wood supply, and strategically located wood-treating facilities are its key competitive advantages.

Bottom Line

Stella-Jones is in a good position to leverage from its leading position as a manufacturer of basic components of North American industrial infrastructure. The company is anticipating growth across its entire core product categories and should also benefit from the growing capital expenditures on track and infrastructure improvements. Its continued investment in strategic acquisitions, networks and capacities should result in improved efficiencies and future growth.

The numbers are stellar but the business isn’t one I am familiar enough to invest. It’s a speciality product in demand by infrastructure for expansion and maintenance which should keep it going but it’s hard to see where it could go outside of acquisitions and diversification. Those are the challenges I foresee.

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DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.