As winter storm Nemo prepared to sock the Northeast with several feet of snow, a Milwaukee business that makes snow plows and salt spreaders was getting ready to clean up. Douglas Dynamics is a snow plow pure play. It owns the Western, Fisher and Blizzard brands. Since May 2010, Douglas has been a public company, trading on the NYSE under the descriptive ticker symbol "PLOW."
Dire blizzard warnings from forecasters this week caught the attention of investors who bid up shares of possible beneficiaries of the wicked weather--likely suspects that included generator maker Generac Holdings, Home Depot, Lowe's. PLOW shares didn't miss the rally, up 8% at one point Friday from Wednesday's low.
So is it silly to buy a snow plow stock just because a big storm is coming? Maybe not. A whopper storm can help sell a bunch of plows that cost an average of $3,500, at the dealerships, with the priciest fetching $8,000.
"When a large storm is imminent, a couple of things happen," says says Robert L. McCormick, Douglas' chief financial officer. "First, snow plowers will make sure their equipment is in good working condition, which translates into potential parts purchases from their dealer in anticipation of the snow event.
"Once the plowing begins, equipment will wear and sometimes break, resulting in emergency repairs at their dealer during the snow storm. Both of these situations result in nice parts sales from our dealers to the end users."
The current quarter, which ends March 31, is traditionally Douglas' weakest with dealers working off inventory ahead of the season's end in March. Revenue in the January-March period last year was just $8.5 million out of $172 million over the past 12 months. The one analyst with a forecast for the current quarter expects revenue of $12 million.
"It's only the beginning of Feb, so there is still a long way to go before this season ends," says McCormick. "Our business is profitable, even in the worst of snowfall conditions. The 2012 snow season was the worst in the past 50 years yet we will deliver approximately $30 million of EBITDA."
Not all snowfall is the same in the plow business. It all depends on where it falls and for how long. "For example, is it better to have one snow day with 24 inches of snow, or four snow days with six inches of snow? Same total snowfall but different levels of equipment usage. Additionally, if 24 inches of snow falls in Boston or New York City, it's much better than if it falls in South Dakota."
One thing that Douglas has delivered for the past two years is a solid divided, even when the snow was not coming down heavily. The $0.83 annual payout gives PLOW a plucky yield of 6%. The dividend is backed up by $1.39 in operating cash flow over the past year.
John Dobosz is editor of Forbes Dividend Investor. Douglas Dynamics is one of the Top 25 recommended stocks in the February 8 issue. Click here to join and see the entire list of new money buys with yields that average 5%.