Higher selling prices and a key acquisition helped spur a 35.5% revenue jump and a 65% earnings jump for this company in the most recent quarter.
Rising steel prices and increased volume sales also support the company’s solid dividend, despite the impact of tariffs on other aspects of the industry.
The stock trades at just 9.1 times the company’s 2019 earnings forecast.
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RUSSEL METALS INC. (Toronto symbol RUS; www.russelmetals.com) is one of North America’s largest metal distributors. It serves over 29,000 clients at 51 locations in Canada and 12 in the U.S.
Russel continues to pay quarterly dividends of $0.38 a share; the annual rate of $1.52 yields a high 6.3%.
In the three months ended December 31, 2018, revenue rose 35.2%, to $1.12 billion from $825.1 million a year earlier. The increase came from higher selling prices as well as the acquisition of DuBose Steel in 2018.
Earnings in the latest quarter were $46.2 million, or $0.74 a share. That’s a 65.0% increase from $28.0 million, or $0.45, a year earlier. The company enjoyed both rising steel prices and increased volume sales. That includes selling more pipe to energy-products customers.
Russel holds cash of $77.3 million, or $1.25 a share; its $443.3 million of long-term debt is a reasonable 34% of its market cap.
Value Stocks: Cyclical risk affects the company but not tariffs
Oil and gas clients supply about 38% of the company’s revenue. That adds to its cyclical risk.
Russel is mostly unaffected by U.S. tariffs on foreign steel. That’s because the company is a steel distributor, rather than a producer. It distributes steel as well as processes it into products according to customer specifications. It generates about 30% of its revenues in the U.S.
Restrictions on steel imports into the U.S., including tariffs, push up prices in that country. In the short term, it raises the value of Russel’s steel inventory. At the same time, the company passes on any price increases directly to its customers.
The stock trades at just 9.1 times 2019 forecast earnings of $2.63 a share. It yields 6.5% which appears to be sustainable. In the past 5 years, Russel’s dividend has grown at an average 1.7% per year.
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Is it possible to know what percentage of the income of Russell Metal is distributed as dividends?
Thanks for your question. We’ll take a look at that ratio for Russel Metals in our upcoming update on the stock in Stock Pickers Digest.