What are we looking for?
Sustainable dividends from steelmakers poised to gain from a U.S. economic boost.
The screen
Stelco Holdings Inc. is now the subject of a takeover offer from Cleveland-Cliffs Inc., which is looking to add to its volumes – and profits – with the expected rise in U.S. steel demand.
The bid for Stelco comes on the heels of another industry takeover attempt – the ongoing sale of U.S. Steel Corp. There, buyer Nippon Steel of Japan has yet to overcome U.S. regulatory and political concerns.
Our analyst team at TSI Network cautions that demand for steel might remain sluggish for the rest of 2024. Still, even modest interest rate cuts in the U.S. should spur the manufacturing activity needed to lift steel demand next year. That would reflect a step up in sales to infrastructure, construction, automotive and energy markets. Longer term, new electric vehicle and battery production, plus wind farms and other clean-energy construction, will also boost demand.
Our search focused on top U.S. and Canadian steelmakers poised to gain from those industry trends. We then applied our TSI Dividend Sustainability Rating System, which awards points to a stock based on key factors:
- one point for five years of continuous dividend payments – two points for more than five;
- two points if it has raised the payment in the past five years;
- one point for management’s commitment to dividends;
- one point for operating in non-cyclical industries;
- one point for limited exposure to foreign currency rates and freedom from political interference;
- two points for a strong balance sheet, including manageable debt and adequate cash;
- two points for a long-term record of positive earnings and cash flow to cover dividends;
- and one point if the company’s an industry leader.
Companies with 10 to 12 points have the most secure dividends or the highest sustainability. Those with seven to nine points have above-average sustainability; four to six points, average sustainability; and one to three points, below average sustainability.
More about TSI Network
TSI Network is the online home of The Successful Investor Inc., the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated six stocks. Algoma Steel Group Inc. ASTL-T, based in Ontario, sells its steel output into the U.S. market. Based in North Carolina, Nucor Corp. NUE-N is one of the largest and most diversified steel manufacturers in North America, offering a wide array of value-added steel products. Steel Dynamics Inc. STLD-Q, headquartered in Fort Wayne, Ind., makes and sells steel products across the U.S. Meanwhile, steel distributors and processors also profit from rising steel demand and prices. These include Mississauga, Ont.-based Russel Metals Inc. RUS-T, Arizona’s Reliance Inc. RS-N and Texas-based Commercial Metals Co. CMC-N Note, we like major steel producer Cleveland-Cliffs Inc. CLF-N, based in Cleveland. However, it does not pay a dividend.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
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