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A condo complex under construction is seen in Whistler, B.C., on Thursday December 4, 2014.DARRYL DYCK/The Globe and Mail

Investors looking to play the Canadian housing market through construction and renovation activity are eyeing national distributor CanWel Building Materials Group Ltd. and its rich dividend yield.

Shares of the Vancouver-based distributor of building materials and home renovation products through retailers such as Rona, Home Depot and Lowe's are up 6 per cent over the past year and analysts are forecasting more growth ahead.

While the stock is down about 40 per cent from where it traded four years ago, when construction was slowed by bad weather in parts of Canada, investors are enjoying a 9.3-per-cent dividend yield as the company expands its business into higher-margin specialty products. That includes siding and insulation as well as wood pressure treating services.

Despite ongoing warnings about the health of Canada's housing sector, most analysts are bullish on the stock, saying the company generates strong free cash flow and is well diversified across the country.

"It's a small-cap name that's probably underappreciated and undiscovered, but it does have a good track record, a good management team and we think good free cash flow and dividend-yield opportunities," said Raymond James analyst Steve Hansen, who has a "buy" rating on the stock and $6.50 price target.

He's one of five analysts with a "buy" on CanWel, while one says "hold," according to S&P Capital IQ. The analyst consensus price target over the next year is $6.83, or about 15 per cent above its current price near $6.

GMP Securities analyst Greg McLeish has a "buy" and $6.75 target, citing the company's growing margins that come largely from three pressure-treating facilities it purchased between 2011 and 2013.

"Management is focused on growth and we believe there could be additional acquisitions available to the company," Mr. McLeish said in a note.

Haywood Securities analyst James Reid has a "buy" and $6.50 target saying CanWel has a "compelling growth runway" for investors. However, he also said it's a "high risk" stock because of the cyclical nature of the construction industry and lumber pries.

CanWel chief executive Amar Doman said sales could slow in Alberta and parts of Atlantic Canada, where a drop in oil prices will likely affect housing construction activity.

"There's an amber light on Alberta for us, but we haven't seen any customer behaviours change yet," said Mr. Doman, who is CanWel's largest shareholder with a 30-per-cent stake.

At the same time, he said building could increase in B.C. and Central Canada, where economic growth is picking up. Alberta made up about 10 per cent of the company's revenues in 2014, compared with 28 per cent in Ontario, 16 per cent in Quebec and 15 per cent in B.C.

Mr. Doman said the company is hunting for more acquisitions to further expand and diversify the business, with a goal of buying one to two companies a year "if it works out," based on valuation.

Canaccord Genuity analyst Yuri Lynk has a "hold" on CanWel and a $6 target, saying the company could be restricted in its ability to make future acquisitions without additional equity.

And while investors are enjoying a high dividend yield, he sees the payout ratio as being high at 86 per cent.

"This leaves little wiggle room to absorb a potential hit to the top line from a decline in solid wood prices and/or lower volumes due to a slowdown in the housing market," Mr. Lynk said in a note.

5i Research managing partner Ryan Modesto said the stock looks attractive, but also sees some risks, including the lingering potential for a housing market downturn across Canada.

"Any bit of an economic downturn could cause a lot of problems for the company," he said.

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