Strengthen Your Portfolio With Dividend Iron And Steel

Oil, has been dominating the headlines on a seemingly daily basis. Of course this comes with good reason as a dramatic drop of almost 50% from summertime highs leave many asking the question of when the bottom will be hit. Though dramatic, the fall in oil price is hardly the only commodity to lose value in recent months. Another valuable commodity that is sensitive to world demand and is often used as a gauge in determining economic growth has fallen over 40% in the last year alone and has dragged down many stocks tied to it as well. I’m speaking of iron ore and the many steel and iron dividend paying companies that may present some compelling opportunities for investment at these reduced prices. Just for reference, in the last year alone iron ore prices have fallen from over $135 per dry metric ton to under $80. That’s a steep drop to say the least.

 

Some popular names in this space include Vale S.A. (VALE), Cliffs Natural Resources Inc. (CLF) and, of course, BHP Billiton plc (BBL). In fact the last few weeks have seen many dividend growth investors initiate or add to their positions in BBL. While the previous names are sensitive to iron ore commodity prices they are also more diversified in their endeavors and have exposure to multiple ore and metals production. For the sake of this article I will focus specifically on the steel and iron dividend stocks. Because the following companies are essentially tied to the vicissitudes of one underlying commodity one would expect higher volatility in their stock price. This is similar to the many names in the oil and gas sector as well. With that being said, let’s review some of the popular dividend paying stocks in the steel and iron sector.

 

CompanyPrice52 Week Lo52 Week HiPEForward PEDividend YieldBeta
United States Steel Corp. (X)$27.82$22.47$46.5541.587.750.70%0.97
Reliance Steel & Aluminum Co. (RS)$58.44$58.40$76.7713.4510.062.30%1.31
Ternium S.A. (TX)$16.83$16.79$32.996.405.784.20%1.08
Schnitzer Steel Industries, Inc. (SCHN)$22.25$21.41$33.32100.6816.863.20%1.92
Nucor Corporation (NUE)$51.88$46.39$58.7624.7014.662.80%1.17
Commercial Metals Company (CMC)$15.68$14.21$21.2016.109.743.00%1.48
Steel Dynamics Inc. (STLD)$20.37$15.80$25.5118.699.562.10%1.50
ArcelorMittal (MT)$10.88$10.85$17.92N/A11.831.50%1.46
Gerdau S.A. (GGB)$3.13$3.10$8.279.603.482.80%1.24
SunCoke Energy Inc. (SXC)$18.80$18.54$24.5776.6429.841.20%1.41

 

Clearly, oil and energy services names aren’t the only high beta names in town. Looking to add some commodity volatility to your dividend portfolio and are overweight in energy, then consider some steel and iron pure plays. As you can see all the stocks are at or near their 52 week lows and with iron ore prices still falling as with oil, some of these names may offer some real value going forward. It seems that oversupply is affecting the iron ore trade just as oil. The question of risk/reward then comes into play as potential purchases in these names will allow you to get paid to wait for the inevitable rise in commodity prices down the road. Of course, further research is required before considering any of the names above but there does seem to be some interesting values that have come into play.

 

Where do you think commodity prices are headed in the near and long term? Are any of these pure play steel and iron companies in your dividend portfolio? Please let me know below.

 

Disclosure: Long NONE

21 thoughts on “Strengthen Your Portfolio With Dividend Iron And Steel

  1. We do not have any pure steel plays in the portforlio currently. Honestly, Nucor is the only one I’d consider in the near term……and I think it’s going lower too. Steel production is a commodity too, and it’s tough to compete with overseas manufacturing. That being said, I have been interested in the diversified miners and will look to average down.

    -Bryan
    Income Surfer recently posted…Some Thoughts on Berkshire’s P&G, Duracell SwapMy Profile

    • Hi IS,

      It seems that any commodity play these days are operating in a challenging environment. Wheat, iron, gold, silver, oil, you name it and it is probably on a strong downward trajectory. Though gold and silver seemed to have a pretty strong week despite dollar strength. Seems that logic has no place in the marketplace these days. I know BBL is a very popular trade in recent times as many are opting for that juicy yield and the relative safety of a diversified miner instead of a pure iron ore play but there are some solid iron ore stocks that have a long dividend history and may be as ‘pure play’ as any oil stock. Thank you for stopping by and sharing your opinion.

  2. Commodities is such a wide ranging category. Mining, energy, grains, lumber. Not sure what oil and metals will be doing in the future. If and when they ever go up I’ll wait for it to have a possible turn around in price. Not saying that will catch THE bottom but its a better chance then picking right now as prices don’t even seem to be slowing.

    I am wanting some base materials in my portfolio and see it happening in the next couple months.
    Pullingmyselfup recently posted…Why I am holding off on BHP Billiton (BBL)My Profile

    • Hi Pullingmyselfup,

      I happen to share your sentiment with waiting on the sidelines before jumping into the commodity world especially with oil and materials names. Clearly, the buzz around the dividend growth blogs for the last few weeks has been any major oil name and BBL. The knife is still falling sharply on that trade and while I’m not a market timer by any means I am a selective buyer to say the least. While compiling this list I was shocked to see that iron ore has dropped as sharp as it has in the last year taking down all the major iron and steel stocks yet has received so little attention in the media. I appreciate your comment.

  3. I do not have any pure iron or steel equities in my portfolio and just do not feel comfortable adding them either. Oil was a bit of a stretch for me, but I added that because of the obvious need, oversupply or not. I think these companies are bit too volatile for my taste. The fact they are tied to growth and creation is the problem as that is something that is not always needed or possible.

    – HMB

    • Hi HMB,

      Oil, iron, gold, wheat or any other commodity for that matter will always have a volatility issue attached to it. That’s just the nature of the game. If I was starting out building a long term dividend growth portfolio I would not place any stocks purely tied to commodity prices because of that volatility. However, if your portfolio is already well established with many solid consumer staple names or utilities for that matter, then perhaps some added volatility might be desired. It’s definitely not for everyone. Look at all the people that bought into oil or materials names in the last month. They saw a continued decline in their stock price. This, of course, has also been true with iron and steel plays. There’s no question that one must tread carefully in these sectors. Thank you for stopping by and commenting.

  4. Thanks for this list DivHut! I don’t have exposure to a pure steel or iron co., but did add to BBL in November. Oh how I wished I would have waited until December, as it’s price has plummeted even more; such is investing! I’ve always like Nucor, but I probably won’t be diversifying into this sector for awhile as I concentrate on my core holdings.
    Special Agent Dividend recently posted…Weekly Investment Activity – First Week of DecemberMy Profile

    • Hi SAD,

      Thanks for sharing your exposure to the metals/materials sector. I know many other dividend investors have been buying up BBL hand over fist and like the diversified nature of their business. The pure play iron ore companies have also been taken to the woodshed as all have seen their stock prices plummet as well. NUE seems to be the company of choice when it comes to investing in this sector. You aren’t the only one who likes that stock from the companies mentioned. As always, I appreciate your comment.

  5. DH,

    I currently own BBL. Good fundamental and I think the company can go long term with dropping commodity prices. I read an interesting comment on seeking alpha this morning from BHP iron ore chief.

    “BHP Billiton (NYSE:BHP) iron ore chief Jimmy Wilson says the days of $100/metric ton iron ore likely are over amid a supply glut and weak Chinese demand.

    Iron ore fetched ~$135/metric ton a year ago, but it is now below $70 as output from global giants such as BHP, Rio Tinto (NYSE:RIO) and Vale (NYSE:VALE) increases, hurting higher-cost producers.

    “It’s hard to see the sort of significant bump that we’ve seen come from China happen again,” Wilson says.
    BHP general manager for iron ore marketing Alan Chirgwin says the company expects China’s growth in consumption of steel – in which iron ore is a crucial component – to slow to 0.5%-1.5% next year.”

    BBL announced earlier this year that they would split off their iron production. I wonder if they expected the drop in oil/commodity price. If they did, this would give me even greater confidence in their staff.
    The Broke Dividend Investor recently posted…GE DIVIDEND INCREASEMy Profile

    • Hi TBDI,

      Those are great quotes and just highlight the volatility of every commodity that trades. I had mentioned that in less than a year iron ore prices have dropped by over 40% yet you hardly hear or read about it in the press. It seems that oil or gold are the commodities of choice when it comes to media sensationalism. I still believe we are witnessing falling knives in many of the commodities and that better prices will present themselves in the near future. It seems that many of the dividend bloggers prefer the diversified nature of BBL over the pure play iron ore companies mentioned in this article especially when the driving force, China, seems to be softening up demand. Thank you for commenting.

  6. Solid list. Long NUE and BBL, and have looked at CMC in the past. Not convinced the valuations here are amazing, but whatever. I won’t be adding to NUE any time soon, that’s for sure. Another I&S company that I really like is PCP, though they make manufactured steel products rather than steel proper. And their dividend is static, non-increasing. Not sure that was what you were looking for though.

    • Hi DD,

      Thanks for sharing your exposure to this sector. I was focusing on iron and steel pure plays and not I&S fabrication such as PCP. PCP might be an interesting play going forward despite its dividend history as input costs for its products are continually going lower. There’s no question that any commodity play these days is highly volatile. While oil is grabbing the headlines there are virtual massacres going on in other commodity sectors. I still find it interesting how iron ore prices have been falling almost on par with oil over the last year and that you hardly hear any mention of it in the media. To be sure, lower valuations/prices are in the future of many of these companies mentioned. I thought it would be interesting to feature this sector and see how other dividend bloggers react to it. Thank you for commenting.

  7. DivHut,

    Excellent post on another new industry.

    I am not sold on iron/steel companies, but I do like ones that are more diversified. Price fluctuation is hard to predict. Another issue I find on some of those is they are foreign located, which means taxes.

    Usually, I really like basic materials sector – because they are always going to be needed, but its hard to get behind a company supported by one commodity. Steel will certainly be needed for a long time still, and an investment there will probably still be a good play.

    Keep it up,
    Dividend Gremlin

    • Hi DG,

      For now, I am standing clear of any commodity names. Whether oil, materials, metals, etc. Focusing on the iron and steel companies it seems that much better prices and valuations are making appearances with iron ore prices in free fall. The same can be seen with oil and energy names. As you note, steel is a commodity that will be needed for the foreseeable future, much like oil, the question then becomes at what price do things settle? I plan to highlight another sector related to oil and gas and see if falling prices are already impacting stocks prices. Thank you for stopping by and commenting.

  8. I have about 90 shares of BlueScope Steel that I have had for a few years (former employee). Raw material prices and transportation costs really hurt the company a few years ago (they even exited the Australian market for some products). I don’t have any stocks on that list, but consider my BlueScope investment to be fairly equivalent as it has a large presence in the US as well.

    I think the companies that are making smart purchases to expand and gain more economies of scale will be the ones left standing.
    Vawt @ Early Retirement Ahead recently posted…10 Ways To Increase Retirement SavingsMy Profile

    • Hi ERA,

      Thanks for sharing your holding in BlueScope Steel. I have never heard of this company before and, as always, appreciate learning about new potential opportunities in certain sectors. I am curious to see how falling input costs, namely iron ore and fuel, will impact many of these commodity plays going forward now that transport costs should be fairly muted in the near term. I think it will be interesting to see where these companies will be in a year or two. From these depths one might think only higher. Thank you for commenting.

    • Hi McKenzie,

      Ever since the election the iron/steel trade has been very fruitful. While I do not hold any of the names mentioned in my portfolio there does exist several solid dividend payers in the mix. Thank you for commenting.

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