How Trump’s Policies Could Benefit This Steel Company

Russel Metals Inc. (TSX:RUS) is well positioned to benefit from Trump’s protectionist policies.

| More on:
The Motley Fool

The Trump administration has had a significant impact on the markets. No individual in the world holds as much influence over the markets as does President Trump. One simple tweet can lead to significant market fluctuations.

In Canada, companies have been impacted by the uncertainty of NAFTA negotiations and the proposed tariffs on imported steel. Some will be negatively impacted, while others stand to benefit.

One such company is Russel Metals Inc. (TSX:RUS).

First, a little background

Russel Metals is one of Canada’s largest metal distributors. It serves 46,000 clients with operations on both sides of the border. Canada accounts for approximately 70% of its revenues and the oil & gas industry represents about 35% of its business.

The company operates in three segments: energy products, steel distributors, and metals service centres. It is the only publicly listed Canadian metals service center and distribution company.

Russel Metals is also highly diversified across its customer base; no customer accounts for more than 3% of revenues in any segment.

Why are tariffs good news?

The company’s business operations make it unique; it does very little cross boarder trading. What does this mean? It means the higher the steel price, the higher the margins.

“The impact for us can be nothing but positive, because higher steel prices are good for us. We are not impacted like a Canadian steel mill because we don’t ship anything to the U.S.” – Marion Britton, Chief Financial Officer

Don’t believe it? The market does.

Since the Trump Presidency, the company’s stock has almost doubled in value.

The company is also looking to further take advantage of the situation. In April, it closed its acquisition of North Carolina’s DuBose Steel, Inc. The purchase is expected to add about $85 million in revenue to Russel’s top line.

It has a strong balance sheet and low leverage. In other words, it is well positioned for further acquisitions.

Why invest?

Are the benefits of higher steel prices not enough? Here are more positives to consider.

Russel has an attractive 5.42% dividend yield, which is well covered by earnings, which are expected to grow by approximately 20% next year.

The oil & gas sector is enjoying a renaissance on the backs of higher oil-prices. This will be a boon for the company as the industry accounts for a big portion of its business.

It is also undervalued. The company is trading at a cheap 12.5 times forward earnings. Its price-to-book, price-to-earnings and price-to-sales are all below industry averages. Given that Russel’s return on investment (ROI) and return on equity (ROE) are both double industry averages, there’s a disconnect here.

Here’s the bottom line. Russel is a solid long-term play with impressive growth prospects.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Mat Litalien has no positions in any of the companies listed.   

More on Dividend Stocks

calculate and analyze stock
Dividend Stocks

This 5.5% Dividend Stock Pays Cash Every Single Month!

This REIT may offer monthly dividends, but don't forget about the potential returns in the growth industry its involved with.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

How to Use Your TFSA to Earn up to $6,000 Per Year in Tax-Free Passive Income

A high return doesn't mean you have to make a high investment -- or a risky one -- especially with…

Read more »

path road success business
Dividend Stocks

2 High-Yield Dividend Stocks to Buy Hand Over Fist and 1 to Avoid

High yields are great and all, but only if returns come with them. And while two of these might, another…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 7% Dividend Stock Pays Cash Every Month

A high dividend yield isn't everything. But when it pays out each month and offers this stability, it's worth considering!

Read more »

young people stare at smartphones
Dividend Stocks

GST/HST “Vacation”: Everything Canadians Need to Know

The GST/HST "vacation" is a little treat for the holidays, along with a $250 payment. What should you do with…

Read more »

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »