Heavy Metal Dividends!

Russel Metals (RUS.TO), a Canadian dividend stock that we like at Dividend Money that happens not to be in the financial industry, has recently acquired JMS Metals Services for $125 million in cash.

Russel Metals has been on the Dividend Money radar for quite some time. In the world macroeconomic scheme of things, we still like China as an investment as we have explained previously. We believe that Russel Metals is strategically positioning itself to both international and domestic markets, and most importantly pays a healthy dividend to stock holders.

The Numbers

Dividend Yield – ~6.0%
Dividend Growth Rate (5-year) – 51.5%
EPS Growth Rate (5-Year) – 79.36%
P/E – 14.23
ROI – 12.10
Beta – 1.03

Russel’s dividend payout ratio is slightly on the high side at just over 70%, but with growth in earnings per share and a stock price that has grown over 13% YTD it is certainly worth further investigation.

The Chart

Russel Metals Chart

Why JMS Metal Services?

JMS was founded in July 1990 and is a full-line distributor of steel and aluminums products with eight strategically located processing and distribution facilities in Alabama, Arkansas, Georgia, Kentucky and Tennessee. JMS has a product mix that is very similar to Russell’s service centre operations, with carbon steel and processing capabilities.

Similar to Russel, JMS does not generate any revenue from the automotive steel industry. JMS’s revenues are expected to be approximately C$200 million for the current year ended December 31, 2007 and EBITDA is expected to be $18.5 million. For the acquisition this implies an EV/EBITDA multiple of 6.9x or EV/Sales of 0.63x.

The acquisition of JMS is expected to close at the end of the third quarter and is likely to add an additional $0.10 per year to Russel’s earnings per share.

Investor Implications

Many analysts believe that the current credit crunch favors Russel Metals, allowing for acquisitions at better prices with less competition for the assets, and also because good assets may certainly arise from companies that have been strained by the current credit market.

Analysts have also suggested that investors take advantage of recent weakness in Russel’s share price and buy more shares! What do you think?

Disclosure: The author does not own shares or Russel Metals

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