The higher steel prices over the past quarter has sent profits skyward at Russel Metals Inc.   Russel (RUS.TO) reported a near-tripling of quarterly profit, thanks mostly to the aforementioned higher steel prices as well as sales of its products to the oil and gas industry.

Net income was C$79 million ($76 million), or C$1.25 a basic share, in the three months ended June 30, the producer and distributor of metal products said. On a diluted basis, per-share profit was C$1.24.

That was up from C$29 million, or 47 Canadian cents a share, in the year-before period.

Dividend Announcement

Although Russell didn’t raise it’s quarterly dividend, it did maintain the regular dividend of 45 Canadian cents a share and also announced a supplemental dividend of 5 Canadian cents per share, which it said was due to the company’s improved earnings level in the current cycle.

Just as an increase in a company’s dividend is viewed as a positive for the future prospects of the company, a failure to increase the dividend, especially in light of such a huge increase in earnings, may be seen as a lack of confidence by management that the company’s recent success will continue for the long term.  Russell is in a cyclical business and as such, management may be forecasting an end to the current cycle.

Russell’s current dividend yield of 6.65% is higher than its 5-year average dividend yield of 5.0%, which makes it an attractive stock on a yield basis.  The company has also been increasing its dividend to the tune of a 5-year 50% dividend growth rate.

One troublesome component for dividend growth investors may be that the company has historically paid out nearly 100% of earning to shareholders - leaving little to re-invest into the future of the organization.

Inside Russel Metals

Russel Metals is one of the largest metals distribution and processing companies in North America (based on revenues and tons sold).  The company’s mandate is to provide customers with competitively priced, quality metal products along with timely delivery.

Russel Metals conducts its distribution business primarily in three segments:

Metals service centers - These centers purchase metal in large volumes from producers principally in North America, add value by providing a wide range of value added services, and distributes products to a broad base of approximately 18,000 end users through a network of 58 Canadian and 12 U.S. locations.

Energy tubular products - The business units distribute pipe, tube, valves and fittings, chiefly to the energy sector in Western Canada and the Western United States from 5 Canadian and 2 U.S. locations.

Steel distributors - On the distribution side, Russell imports foreign steel products into Canada and the United States for customers that include both steel mills and metals distribution companies. This business segment operates from Canada as Wirth Steel and from the U.S. as the Sunbelt Group and performs coil processing under Arrow Steel Processors.

The company is one of the few metals distribution companies in the world to operate a significant international trading operation in conjunction with service centers.

Final Call

For an income investor looking for a solid dividend yield in an industry other than financials or Real Estate, Russell Metals may offer that diversification that you are looking for.  However, if you are building a dividend growth portfolio for the future then you may want to place your money in a company that has a lower payout ratio with more room to grow.

Full Disclosure: The author does not own RUS.TO.

With markets in Europe and Japan seeing much of the same fate as the Unites States, global diversification almost seems to be a forgotten concept these days. For those investors who have been gathering cash and are now looking to enter the market again, history shows that a strategically diversified portfolio will outperform money market or bond investments over the long term.

It often helps to remind ourselves that, while some areas of the market may not be performing well in this downturn, other areas or regions may be offering decent returns. The idea behind diversification is to protect a portfolio from poor performance in one area by providing beeter performance in another.

Buying Undervalued Stocks

Since no one has a crystal ball to predict which regions will outperform, analyzing certain metrics, like price-to-book value, helps to uncover which stocks or sectors that are likely to perform well going forward because they are currently undervalued.

Price-to-book (P/B) is a popular ratio that indicates how much investors are willing to pay for a company’s assets. In general, the higher the ratio, the more expensive a stock is considered to be.

Where Are The Bargains?

The chart below (Courtesy RBC) captures the average P/B ratio for stocks in a number of different countries, which points to whether each market is over-priced or under-priced. The red line shows the mean, or average P/B value. Any circle above that line is considered an expensive market; anything below is considered to be attractively priced.

Stock markets in several countries, including the U.S., are now trading at below average P/B valuations. By contrast, Asia (ex Japan), China, Canada and Brazil are considered expensive relative to their historical mean valuations.

Charts such as these may help you understand why some investors are now overweight in equity exposure, many with a bias towards U.S. and global markets. It seems that the short term volatility in the markets has shifted investor focus off of valuations and into irrational fear. However, we know from historical statistics that not over-paying for investments is a key factor in achieving long-term success - which means it may be a great time to put some cash to work for the long term.

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Even without the gain, Great-West’s results exceeded expectations set by the street. Most importantly for us dividend growth investors, Great West Lifeco managed to raise its dividend by 5 per cent to 30.75 cents a share in spite of a tough financial environment.  The inherent profitability, due to more conservative and principal guaranteed investments, is one of the reasons that I was touting insurance companies back at the beginning of the “Bank meltdown”.

Following the announcement, the company’s shares increased by 3.1 per cent to $29.82 on the Toronto Stock Exchange later in the session .

Financial Highlights

Net income in the April-June quarter was $1.21-billion, or $1.36 a share, the company said. That was up from $544-million, or 61 cents a share, in the same 2007 period.

Excluding the $649-million gain on the U.S. health care business, adjusted net income was $564-million, or 63 cents a share, up 4 per cent from a year earlier.

Analysts expected that the company would announce a profit of 61 cents a share, at least  according to the estimates by Reuters.

In its Canadian business alone, the net income increased 7 per cent to $275-million.

With a Dividend yield of 3.94% and a Beta of just 0.47, Great West Lifeco could be an investors dream stock in a rocky market.

Couple those two statistics with an average dividend growth rate of 17.5% over the last 5 years and a payout ratio of less than 50% and we have a fantastic candidate for a long-term dividend growth portfolio.

Company Quick Facts

Great-West has various insurance and asset-management companies in Canada, the United States, Europe and Asia and is a is a financial services holding company with interests in the life insurance, health insurance, retirement savings, investment management and reinsurance businesses.

Great-West is controlled by Power Financial Corp., a Montreal-based financial holding company that is also one of my favorite non-bank Canadian dividend stocks.

Full Disclosure: The author owns shares of Power Financial Corp.

The Time Is Now

How do I know that now is a good time to buy stocks?  Well, I don’t know that the stock market will not go down further, but I do know that the DOW was about 600 points higher in early 2000 than it is today.  Therefore, historically speaking, stocks appear to be on sale.  Maybe a quote by the ever astute Warren Buffett will help to encourage us to put our cash to work in this market:

“If a stock [I own] goes down 50%, I’d look forward to it. In fact, I would offer you a significant sum of money if you could give me the opportunity for all of my stocks to go down 50% over the next month.”

Of course, that thought process only works when you have cash available to invest and you are confident in the long-term prospects of the businesses that you are invested in.

What is Your Time Horizon

Welcoming a bear market with open arms is easy if you have the two following things on your side:

1.) Cash

2.) Time

If you have excess cash available to put to work for at least 7-10 years, then loading up on high quality dividend growth stocks and low-cost ETF’s should be a no-brainer at the equity prices that we see today.

Even if you are fearful of investing in certain companies whose share prices have been beaten down badly over the past year, dumping money into a low-cost broad based index fund is likely to produce some nice positive returns over a longer time period.

Why Does It have to Be Hard?

Investing doesn’t have to be hard, but then again there are “talking heads” all over the news spreading the latest doomsday quote of the week and spouting off data that probably doesn’t affect your investments in any meaningful way over the long haul - yet it influences our decisions.

Wouldn’t it be excellent if we could develop a systematic way of investing in high quality dividend paying stocks that raise their dividends over time and continue to buy more shares when prices are lower and buy fewer shares when the prices were high?

Of course, the news outlets will try their best to make you sway from your strategy as they spin every market correction into the next great depression and every recovery into the next gold rush…but then again they are out to sell papers and not to invest in stocks.

It is always easier said than done, but in order to gather wealth we have to do four things:

1.) Shut off the media

2.) Develop your investment plan

3.) Implement your investment plan

4.) Don’t quit

It may sound too simple, but over the course of 7-10 years it is amazing how little the daily blips in the market really affect a sound investment strategy.

Source:

Wall Street Journal - Stop Worrying and Learn To Love The Bear

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I happened to be fortunate enough to receive the full raise that I was eligible for this year. While I’m not quite as excited about this as I am about getting a raise without doing anything, a raise in income means increased contributions to my investments and the prospect of an early retirement.

Expect The Unexpected

Because I work in the financial industry, this year has been slightly tough on the company. This means that the annual bonuses that I have been used to in recent years will not be granted this year. Not only will the company not be issuing the familiar 10-12% bonuses,  we are actually expecting nothing – 0%!

Of course, the lack of bonus pay-outs is traumatic for employees. However, people underestimate the effects of the 3% raise in salary.

The Glass Is Still Half Full

Even though it appears that I will not have my bonus money to top-up my retirement savings account, I will receive significant benefits from the small 3% raise that I did get.

1.Life Insurance – My company provides me with life insurance to the tune of 3X my gross salary. This 3% raise equates to a 9% increase in the life insurance available to my family if something should happen to me in the next year.

2.Company Pension – My company provides me with a managed pension plan for which they match 7% of my salary. This raise provides 6% more money being contributed to my pension plan for 2008.

3.Investment Account – I contribute 25% of my net salary to an account dedicated to my dividend growth investments. Obviously, this means an increase to that contribution.

It is interesting how we forget those benefits that don’t necessarily show up in our checking account when our paychecks are deposited. The power of compounding takes effect not only with our dividend stocks or in our high-interest savings account, but with our workplace benefits as well.

Understand and Use Your Company Benefits!

Of course it is our hope that we can retire early if we choose great dividend growth stocks, but we have to take advantage of all of the programs and benefits that are offered along the way. I certainly believe that investing in my company matched pension plan will speed up my retirement process.

So, the next time you hear complaints around your workplace about the lack of bonuses or a cheap 3% raise…just remind yourself of this article and make sure that you are fully utilizing all of the benefits available to you.

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