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Oct 13

DT Assessment: Russel Metals (RUS)

Russel Metals processes, manufactures and distributes tubular metal products amongst North America, with about 30 sub-companies operating under the Russel Metals brand.  A large percentage of their business is devoted to providing piping materials to the energy industry.

Russel Metals has one of the longest operating histories of any company, not just in Canada, with its roots dating all the way back to 1785.

Financial Information

  • Revenue over last 12 months: $3.0 Billion
  • Profit in last 12 months: $88 Million
  • Company Assets: $1.8 Billion
  • Company Debt: $1.0 Billion
  • Cash and Equivalents: $115 Million

Russel Metals came out of the 2008 recession in rough shape.  Revenues dropped by over a third in 2009 vs 2008 and they wound up taking a loss that year as well.  Since then, they have managed to increase revenue back up to near pre-recession levels, and have been generating profits since then.

The challenge Russel Metals faces is likely faced by all players within this segment – it is clearly difficult to generate strong profit margins in this industry given the significant infrastructure and labor costs associated with this industry.  Their current profit margin of 3% leaves little room for error, and is not particularly appetizing from an investor standpoint.  Even back before the recession they only had a profit margin of about 7%.

 

Dividend Information

Russel Metals has 13 years of uninterrupted dividends, but its dividend was cut almost in half in early 2009.  Since 2009 they have been aggressively increasing the dividend; however, it has held steady for the past 6 quarters and is still below pre-recession levels.  The yield is currently just over 5%.

Stock Performance

Russel Metals stock price was hammered in the recession, dropping from from over $30 a share to just over $10 a share.  Since early 2009, the stock price has rapidly increased back up to its current $27ish level.  For investors who bought in at the low point, congratulations.

Going forward, Russel Metals will likely need to continue to grow revenue and increase profits in order for there to be market appetite for higher stock prices.

Dividend Tactics Assessment

DT Score:  463

From a dividend investor standpoint, Russel Metals has been a decent company to own over the past 3-4 years with both strong dividend increases and capital growth.  Those who owned it before the recession and sold their positions missed out on a great recovery.  Going forward the dividend is high and likely safe given the way they are able to manage inventories to align with the cyclical pattern of the market, but I am concerned about their ability to generate profit and the effect it may have on future dividend increases and stock price growth.

Disclaimer: I currently own Russel Metals within my portfolio