The company had a good quarter and expects the good times to keep rolling. Is the recent pullback in the stock price overdone?

Russel Metals (TSX:RUS) is down in recent weeks despite posting strong Q1 results. TFSA investors who missed the big rally off the pandemic crash are wondering if this is a good time to add the stock to their portfolios focused on passive income.

Russel Metals is a metals distribution company in Canada and the United States. The business operates in three core segments:

The metals service centres provide manufacturing and construction clients with hot rolled and cold finished steel, pipe products, tubular products, aluminum, stainless steel, and other specialty metals.

Steel distribution involves selling steel on large wholesale orders to other steel services centres or large equipment manufacturers.

The energy group provides the oil and gas industry with products designed specifically for the sector.

Russel Metals generated record revenue of $1.34 billion in the first three months of 2022, compared with $885 million in the same period last year. EBITDA came in at $153 million, compared with $129 million in Q1 2021. Russel Metals earned $1.56 per share in the quarter, up from $1.29 in the first quarter a year ago.

All three of the business segments delivered solid results to start the year. Metal service centres shipped 13% more product compared with the previous quarter. The steel distributors managed to satisfy strong client demand despite challenging conditions and benefitted from supply disruptions in the global steel industry. Energy products continue to see a recovery in demand as the oil and gas sector starts to channel more cash to exploration and development.

Russel Metals maintains a strong balance sheet with total available liquidity of $457 million at the end of the quarter.

Management expects steel prices and margins to remain above historic levels in the near term. The rebound in demand from the energy sector is picking up momentum, and the metals service centres group continues to see strong demand thanks to the rebound in economic activity after the pandemic crash.

Russel Metals pays a quarterly dividend of $0.38 per share. Investors have received a distribution every three months for more than 20 years.

At the time of writing, the stock trades near $31 per share and provides a yield of 4.9%.

Steel prices can be volatile and the stock has a history of going through significant ups and downs that follow the commodity cycles, so it might not be the best investment for those seeking long-term capital appreciation.

That being said, Russel Metal is an attractive stock for dividend investors who don’t mind riding out the downturns. The company has demonstrated its ability to maintain the generous payout in difficult times, so dips in the stock price can be used to add to the position.

The share price is currently off the 12-month high above $37. Additional weakness is possible in the coming weeks if the broader market extends its correction, but the latest dip should be a decent entry point for income investors. The outlook for the steel market remains positive, and you get paid well to wait for the next bounce.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Stocks with long track records of dividend growth tend to deliver strong total returns for patient RRSP investors.

These three cheap dividend stocks could be excellent buys in this volatile environment.

Nutrien (TSX:NTR)(NYSE:NTR) stock soared by 53% in 2022 but then fell back in the market correction. Could another climb be…

Here's how patient investors can use top TSX dividend stocks to build a substantial TFSA for retirement.

The TSX financial sector has some great high-yield stocks to buy.

Higher interest rates are beginning to slow activity in the housing market, although homebuyers will have to wait longer for…

Oil might be the right choice for your short-term investment needs, whereas your food commodity investments may take longer to…

Nutrien (TSX:NTR)(NYSE:NTR) stock is in a bear market, but should Canadians look to buy the dip, or could more pain…

These 5 Stocks Under $50 Could Be Great For Building Wealth

In this FREE STOCK REPORT, Iain Butler, and his team at Motley Fool Canada’s Stock Advisor have released a special free report, detailing 5 stocks under $50 that they think are fantastic opportunities in today’s volatile market. Don’t look back five years from now, regretting that you failed to act.

Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people around the world achieve their financial goals through our investing services and financial advice. Our goal is to help every Canadian achieve financial freedom and make all levels of investors smarter, happier, and richer.

From breaking news about what is happening in the stock market today, to retirement planning for tomorrow, we look forward to joining you on your journey to financial independence.

© 2022 The Motley Fool Canada, ULC. All rights reserved.