Russel Metals Inc 2

I own this stock (TSX-RUS). I first bought this stock in 2007. I bought more in 2009 and 2011. To date I have a total return of 5.4% per year. Of that return, 4.3% is attributable to dividends. So my dividend payments are 80% of my return. I expected to do better in the future.

The insider trading report does not tell us much. There is a bit of insider buying and a bit of insider selling with a small net of insider buying. All insiders but the directors have more stock options than shares. Lots of insiders own convertible Debentures as well as shares. The CEO probably owns the most shares at 101,739 worth around $2.8M. Some 75 institutions own 36% of the outstanding shares. They have bought and sold shares over the past 3 months and have decreased their shares by 4%. (This is not a good sign, but there is often a herd mentality in institutions.)

I get 5 year median high and low Price/Earnings Ratios of 10.22 and 14.38. (The 10 year median high and low P/E Ratios are substantially lower at 5.77 and 8.93, respectively). The current P/E ratio is 14.15. Although it is not a particularly high P/E ratio, it would be a relatively high one for this stock.

I get a Graham Price of $23.97. The current stock price is $27.45 is 14.5% higher. The high difference between the Graham Price and the stock price is the stock price being 4% lower than the Graham Price. This would also suggest a relatively high stock price. (The low difference between the Graham Price and the stock price is the stock price being some 42% lower than the Graham Price.)

I get a 10 year Price/Book Value Ratio of 1.70. The current P/B Ratio of 2.09 is some 23% higher. This would suggest a relatively high stock price. The last test is the Dividend Yield. The current Dividend Yield of 4.37% is good, but the 5 year median is 28% higher at 6.12%. Even the 10 year median low dividend yield of 4.42% is higher than the current one. So this also suggests a relatively high stock price.

When I look at analysts’ recommendations, I find Buy, Hold and Underperform. The consensus would be a Hold. One hold gives a 12 months stock price as $26.00. Another Hold gives a 12 months stock price of $27.00. Analysts like the good debt ratios of this company. No one says anything bad about the company.

Analysts think it is well run. Buy analysts feel that we are in the growth phase of the current business cycle and this company does well in the growth phase of the business cycle. One analyst said the dividend would be risk if there was an economic dip. Hold analysis do not see any upside as they find the stock fully valued (That is price is high and unlikely to go higher.) My spreadsheet shows that the price is high, and so it agrees with this assessment.

Who would buy this stock? Russel Metal would be a good stock for someone just starting out and can accept the risk. If you are living off your dividends like I am, it could be part of a large portfolio but you have to be able to handle the variation of dividend payments. I have a lot of very stable dividend paying stock to counter act the variable dividends of this one. This stock is very sensitive to the business cycle.

The thing is never buy a stock that will stop you from getting a good night’s sleep. Russell will be more volatile that your stable conservative utility stock. It will be more volatile in things like dividends, earnings, cash flow and revenue. That said you could potentially make a lot more money with it than your stable utility stock. (However, threre is lots of indicators saying now is not the time to buy this as the current price is relatively high.)

Personally, I like to have a mix of low, median and high dividend yield and low, median and high dividend growth stocks. That is I like stocks with different growth and yield patterns. Having such a mix has caused my dividends to grow each year. I have a 5 year median dividend growth of 11.4%. My lowest dividend growth year was at 5.3% (2010) and the highest at 24% (2007). The 5 year median growth is way above inflation and my dividends are growing much faster than my budget.

This company does metal distribution and processing North America. It operates in three segments of metals service centers, energy tubular products and steel distributors under various names including Russel Metals, A. J. Forsyth, Acier Leroux, Acier Loubier, Acier Richler, Arrow Steel Processors, B&T Steel, Baldwin International, Comco Pipe and Supply, Fedmet Tubulars, JMS Russel Metals, Leroux Steel, McCabe Steel, Mégantic Métal, Métaux Russel, Métaux Russel Produits Spécialisés, Milspec, Norton Metals, Pioneer Pipe, Russel Metals Specialty Products, Russel Metals Williams Bahcall, Spartan Steel Products, Sunbelt Group, Triumph Tubular & Supply, Wirth Steel and York-Ennis. Its web site is here Russel Metals. See my spreadsheet at rus.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.