Dividend Analysis Of Reliance Steel & Aluminum

Reliance Steel & Aluminum Co. (NYSE: RS) is a metals service company which deals with the processing and distribution of metals such as steel alloys, brass, copper, aluminum, stainless steel, titanium and carbon steel.

The company provides services such as bean bar, tube cutting, forming and shaping, flat roll processing, plate cutting, sheet cutting, machining and some special services on demand. Founded by Thomas J. Neilan in 1939 and based in Los Angeles, Reliance Steel has been paying good dividend yields and payouts lately.

Brief Stock Summary

Reliance Steel & Aluminum has a dividend yield of 2.34% and a dividend payout of 37.38%. Compared to its peers, including Worthington Industries (NYSE: WOR), Nucor (NYSE: NUE), Olympic Steel (NASDAQ: ZEUS), Alcoa (NYSE:AA), Carpenter Technology (NYSE: CRS), A&M Castle (NYSE: CAS) and Friedman Industries (NYSEMKT: FRD), which have relatively less peer median dividend yield of 1.44% and a dividend payout of 13.95%, Reliance’s stock is currently performing pretty well.

This kind of quality dividend yield and payout certainly make Reliance’s stock a good investment option for most investors. However, the company’s average dividend quality score of 50 points out of 100 (compared to its peer’s average dividend quality score of 75 points), is a bit worrying.

Low dividend quality score lessens the confidence of investors in a company’s ability to pay strong dividends in the future. Though this quality score may look less attractive for investors who are seeking current income, investing in Reliance Steel can prove to be a wise decision for long-term investors.

Quality of Dividends

  1. Over the past 12 months Reliance Steel has paid quality dividend payouts representing an overall yield of 2.3% at current price.
  2. Taking into consideration the last five years, the quality of dividend yields hasn’t been consistent. Of the five annual dividends paid during this period, one was of a high quality, three were medium and one was of low quality.
  3. The cash balance of the company is less than last year’s dividend payment and cannot be trusted if it can mitigate any further significant cash flow reduction in the future.

Dividend History

Year Dividend Yield (%) Dividend Payout (%)
2011 0.98 10.48
2012 1.27 15.01
2013 1.65 30.43
2014 2.29 29.60
2015 2.89 38.46
Latest 2.34 37.38

 

Company’s Current Stock Analysis and Overview

  • Reliance Steel’s shares are currently trading at a price of $76.5 (up 10.23%)
  • It currently has a high P/B ratio (1.34) compared to its peers (1.11)
  • Analysts, as of now, classify Reliance as “harvesting” pertaining to its low growth expectations in spite of heavy returns
  • It has relatively high profit margins
  • The company’s yearly revenue changes along with earnings, which are better than the median of its peers
  • Its current and past five years operating returns are relatively higher and consistent
  • Though Reliance’s recent revenue growth is above the peer median, its P/E ratio is less, which suggests that the company’s earnings may soon be peaking.
  • It has enough capital investment to support possible future growth.
  • The company is also capable of attaining additional debts, if required 

Analysts Opinions

Analysts classify Reliance’s stocks as “harvesting” pertaining to the market’s low growth expectations in spite of it attaining heavy returns for the past five years. However, for long-term investors, Reliance’s stocks may prove to be beneficial.

Here it should also be noted that the company’s dividend payments are compensated from the operating and investing cash flows, that remain after clearing debt repayments. This suggests that the company’s dividends are of a high quality.

Disclaimer

The information provided in this article is obtained from various sources and we cannot represent its accuracy or timeliness. Investors are requested to perform in-depth research before making any decisions on investing in the aforementioned stock(s).

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