Industrial stock looks to maintain high yield in slower economy

RUSSEL METALS (Toronto symbol RUS; www.russelmetals.com) is one of North America’s largest metal distributors. It serves its 39,000 clients through 54 locations in Canada and 12 in the U.S. In the three months ended December 31, 2012, Russel’s revenue rose 7.6%, to $765.9 million from $711.6 million a year earlier. Revenue at the company’s steel-distribution division fell 20%, and sales at the metal-services business declined 10%. That’s because the slower economy pushed down steel demand. However, the energy tubular products division, which supplies pipes for oil and gas exploration and development, saw its revenue jump 48% on higher drilling activity. [ofie_ad]

Investing in stocks: Declining steel prices and strike both cut into company’s profits

Earnings fell 28.4%, to $20.4 million, or $0.34 a share, from $28.5 million, or $0.47. Steel prices declined in the latest quarter. That cuts Russel’s profit margins and causes it to suffer losses on its inventory. A strike at its Boucherville, Quebec, plant also lowered profits. This dispute has since been resolved. The company gets 30% of its revenue from clients in the oil and gas drilling industry. Russel holds cash of $247.1 million, or $4.11 a share. Its long-term debt of $451.4 million is a reasonable 26.6% of its market cap. The stock yields 5.0%. In the latest edition of Stock Pickers Digest, we look at Russel’s long-term outlook in light of the risks of its exposure to both the oil and gas drilling industry and to fluctuating steel prices. We conclude with our clear buy-hold-sell advice on this stock. (Note: If you are a current subscriber to Stock Pickers Digest, please click here to view Pat’s recommendation. Be sure to log in first.) COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members It is fairly unusual to find a high-yielding industrial stock. In your opinion, does a dividend make up for the fluctuations industrial or resource stocks invariably go through as the economy falls and rises? Let us know what you think.

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