When it comes to finding basic materials, many investors might simply look to silver, gold, or other basic necessities. But there are so many hidden in plain sight. In fact, while steel might not have the flash of gold, it certainly has the stability — both figuratively and literally.
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Steel is a steal
Steel is everywhere. From bridges to railways, wind turbines to electric vehicles (EVs), we can’t escape it! The product underpins our modern life, and when governments spend on infrastructure, or renewable projects ramp up, the demand for steel rises. It’s simply the backbone of the economy and perfect for long-term investors.
Even better? Supply is constrained. Sure, that doesn’t sound good, but for investors, it can mean there’s a gold mine to be had. The industry went through years of underinvestment, mill closures, and consolidation. Because of this, demand is only now on the rebound, and producers don’t have unlimited capacity to flood the market. So, tightening supply means higher prices.
Those higher prices don’t necessarily mean higher share prices. In fact, despite many steel companies offering up stable balance sheets, many are still undervalued. This can mean steel stocks trade at low earnings multiples compared to other growth industries, even with high cash flow. So, where should investors look?
Consider LIF
If you’re interested in steel, then there’s one stock to consider, and that’s Labrador Iron Ore Royalty (TSX: LIF). LIF isn’t a miner, but it’s perfect for those wanting exposure to steel demand with the added benefit of a steady income. The stock doesn’t have high operating costs and risky expansion plans. Instead, it’s tied to the Iron Ore Company of Canada (IOC). Therefore, it earns money through a 7% royalty on every tonne IOC sells, a small per-tonne commission, and dividends from its 15% equity stake — the perfect low-cost, leveraged exposure.
Because of this, LIF has no debt, it also has very low overhead, and a clean balance sheet. In fact, almost all of the cash flows back out to shareholders as dividends. Right now, that dividend sits at 8%, offering a huge yield supported by long-life reserves in IOC. So, if you’re an investor looking for long-term growth, this is a strong option.
Now, it’s not perfect. The Income stream is cyclical, and the second quarter showed that when prices drop and IOC holds dividends, LIF’s cash flow takes a hit. Dividends also fluctuate quarter to quarter, with the company tied to IOC. But there is a trade-off. You get a high-yield pure-play steel stock without the price volatility.
Bottom line
If you’re an investor looking for lifetime income and growth from a stable, valuable stock, then LIF is one to consider. In fact, a $7,000 investment right now could bring in $560 in income every year!
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| LIF | $28.07 | 249 | $2.25 | $560 | Quarterly | $6,994 |
So, if you want high dividends without the worry, especially as global demand kicks higher, the LIF is one of the best and most efficient ways to achieve that goal.
