Monday, April 11, 2016

Russel Metals Inc.

Sound bite for Twitter and StockTwits is: Price is relatively cheap. You only get a relatively cheap stock price using dividend yield and P/B Ratios. However, this testing does not depend on estimates, so to my mind can be a better test that ones that rely on estimates. See my spreadsheet on Russel Metals Inc.

I own this stock of Russel Metals Inc. (TSX-RUS, OTC-RUSMF). This was a stock on Mike Higgs' Canadian Dividend Growth List. This is why I was following this stock and why I bought it. I have had this stock since 2007. I bought more in 2009 and 2011. It is an industrial stock so I expect to make money over the longer term, but this company will have problems in all recession.

So how have I done? My total return is 2.14% per year with capital loss at 4.22% per year and dividends at 6.36% per year. This is a low return. If you look at how much of the cost of the stock that my dividends have covered, it is some 37%. This is good after 8 years.

I made three separate purchases of this stock. This first purchase was the highest, the second was the lowest and the third was an in between price. For the first purchase, my current dividend yield is 4.68% on my original stock price compared to my original yield of 5.54%.

For my second purchase my current yield on my original stock price is 9.23% where the original yield of 6.07%. For my third purchase, my current yield on my original stock price is 6.55% compared to the original yield of 5.17%. It is only for my second purchase that my current yield on my purchase is higher than the current dividend yield for this stock at 7.67%.

This is not exactly a dividend growth stock. Dividends have gone down as well as up and dividends have been suspended in the past. An example is in 1992 when dividends were suspended for some 7 years because the company was having a difficult time making a profit. Over the past 5 and 10 years, dividends have grown by 8.7% and 4.3% per year. Analysts do not see this company changing their dividends over the next couple of years but a recent article referenced later by Motley Fool suggests just that.

Growth in Revenue, Earnings and Cash Flow over the past 5 and 10 years has been non-existent to moderate. For 2015 all of these items were lower than in 2016. On the positive side this stock has great debt ratios that will help it through the tough times. The Liquidity Ratio for 2015 is 3.07 and the Debt Ratio for 2015 is 2.18. The Leverage and Debt/Equity Ratios for 2015 were 1.85 and 0.85.

I am planning to hold on to my shares in this company. I bought this stock to diversify into industrials and this reasoning has not changed.

The 5 year low, median and high median Price/Earnings per Share ratios were 12.98, 15.70 and 17.61. These are higher than the corresponding 10 year values of 11.58, 14.00 and 15.99. They are also higher than the historical values of 8.22, 8.55 and 11.17. The current P/E Ratio is 19.61 based on a stock price of $19.81 and 2016 EPS estimate of $1.01. This stock price testing would suggest that this stock is relatively expensive. However, I wonder how valid it is to test the stock price using P/E Ratio because earnings are quite volatile.

I get a Graham Price of $17.89. The 10 year low, median and high median Price/Graham Price Ratios are 0.88, 1.08 and 1.29. The current P/GP Ratio is 1.11 based on a stock price of $19.81. This stock price testing suggests that the stock price is reasonable, but above the median. A problem here is that the Graham Price is also quite volatile.

If you look at dividend yield you get a different story. The 5 year median dividend yield is 5.11%. The current dividend yield is 7.67% based on a stock price of $19.81 and dividends of $1.52. The current dividend yield is some 50% higher than the 5 year median dividend yield. This stock price testing is suggesting that the stock price is relatively cheap.

You get the same results looking at the historical median dividend yield which is 4.80%. The current dividend yield of 7.67% is some 60% higher than the historical dividend yield. This stock price testing is suggesting that the stock price is relatively cheap. Note that this current dividend yield, although it is high, it is not as high as the historical high dividend yield of around 10.3%.

I also want to test the stock price using the Price/Book Value per Share Ratio which shows that the stock is relatively cheap. The 10 year P/B Ratio is 1.83. The current P/B Ratio at 1.41 is some 23% lower. This stock price testing is suggesting that the stock price is relatively cheap.

When I look at analysts' recommendations, I find Buy, Hold and Underperform recommendations. The Hold recommendation is the most common and the consensus recommendation is a Hold. The 12 month stock price consensus is $19.50. This is lower than the current stock price of $19.81 and would imply a total return of 6.11% with a capital loss of 1.56% and dividend of 7.67%.

This article at Franklin Independent says that only8.3% of analysts were positive on this stock. A recent article in the Standard Tribune is positive on this stock after a gap up. Nelson Smith of Motley Fool suggests that the dividend might be cut over the next couple of years.

I will have only one entry for this stock this year. However, I did a more complete report on this company in 2015 and you can see those reports here and here.

I recently wrote about Toromont Industries Ltd. (TSX-TIH, OTC-TMTNF)... learn more. The next stock I will write about will be DH Corp (TSX-DH, OTC-DHIFF)... learn more on Wednesday, April 13, 2016 around 5 pm.

Russel Metals Inc. is one of the largest metals distribution and processing companies in North America. The Company primarily distributes steel products and conducts its distribution business in three principal business segments: metals service centers; energy tubular products and steel distributors. Its web site is here Russel Metals Inc..

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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