July-Kaiser Aluminum Stock & Dividend preview

Yes, it’s been awhile since I started a position in a new company. Today I put some money into Kaiser Aluminum, ticker symbol KALU which I’m excited about watching.

Why am I investing in KALU?

Here are some reasons:

KALU Dividend:

• Yield = 2.53%
• 1 year dividend growth = 9.09%
• 5 year dividend growth = 11.38%
• Payout ration = 39.36%

So, you can already see that it has a track record of growing its dividend. It’s grown its dividend for the last SEVEN years. Awesome! The payout ratio is a very low 39.36% so between that, cash flow and debt levels I truly believe we have NOTHING to worry about with the dividend, it’s safe.

Valuation metrics of Kaiser Aluminum

• P/E = 16.90
• P/ Book = 2.04
• Enterprise/EBITDA = 9.41
• Profit Margin = 5.90%
• Return on Equity 12.52%
• P/Cash flow = 11.18
• Long term Debt/equity = 50.24
• Project EPS Growth Next year vs. this year 8.66%

You have to keep in mind numbers and math don’t tell you everything. However, I think sometimes they help you decide whether to cut a stock from the list without getting your emotions involved too much. For example, if I see P/Book of 8, I’m probably going to pass.

The P/E here is a little above 15 but I don’t think the company is fully valued. I certainly wish the profit margin was higher but this is a very capital intensive industry so I expect margins to be a bit lower.

The Debt looks good to me for a materials/metal company that is capital intensive. Some growth is projected for next year and we have a decent Return on Equity here. I normally look for a smaller Price/Cash Flow but I can live with this for now. Especially in a market where I’m finding it more and more difficult to find things undervalued.

What do they do?

Those are my screens but now it’s time to get into what the company actually does. Without knowledge of that the above is mute. You need to know what you are investing in.

Aerospace

They are highly involved in the production of aluminum parts for aircrafts; things such as sheets, plates, tubes, and beams. Some of these materials are also supplied to the U.S military. The company was founded in 1946; they currently have twelve facilities across North America. Production includes rods, bars, wires and sheets for the aerospace and automotive industries.

Automotive

The use of Aluminum in cars and trucks has been expanding in recent years. The new F-150 for example. Kaiser supplies automotive manufacturers with their parts. Parts include bumpers, driveshaft tubes and Panels. As we make the move for more fuel efficient cars, I strongly believe the Aluminum content of vehicles is only going to increase.

Tooling

Kaiser helps with tooling plates, nails, screws and bolts

Latest Earnings Summary

• Net sales up 2% from prior quarter
• Net income up to $28 million from $26 million last year
• $138 million in cash and cash equivalents
• Value added revenue of $218 Million
• Earnings per share 1.85 vs 1.60 quarter to quarter

Recent News

They recently acquired Imperial Machine & Tool Company. Imperial does metal additive manufacturing.

https://www.imperialmachine.com/

Please be sure the Kaiser Aluminum website here:

http://www.kaiseraluminum.com/

Commentary

In summary, I’m quite pleased with the way the books look. I see no concerns that aluminum will continue to be used in aircrafts and automobiles. In fact, I expect the use to increase. The debt levels of the company aren’t concerning, the dividend is growing nicely and the payout ratio is reasonably low. Kaiser has a nice cash flow as well. Look forward to watching this one grow and provide me with quarterly income. Here is a youtube video where I summarize my thoughts on this company: