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Thursday February 02, 2012
Cliffs Natural: A DRIP favorite
by Vita Nelson, editor MoneyPaper Our latest featured dividend reinvestment stock is Cliffs Natural Resources (CLF). Founded in 1847, the former Cleveland-Cliffs is the largest producer of iron ore pellets in North America. The company accounts for almost 45% of the market and, since acquiring Alpha Natural Resources in 2008, a significant producer of metallurgical coal for the steel-making industry. It operates six iron ore mines in Michigan, Minnesota, and Eastern Canada and two coal mines in West Virginia and Alabama. 
The company also owns an Australian iron ore mining company and has interests in a Brazilian iron ore facility and an Australian coal mining operation. CLF is a cyclical company whose shares have declined from a 2008 high of $121 before rebounding from $11.80 to $102.48 in 2011. Consensus estimates call for it to have earned about $12.73 per share in 2011 and to net $12.71 in 2012, compared with $7.49 in 2010. But Value Line projects earnings per share of $17.50 in 3-5 years. Finding a company with a price/earnings ratio of less than 6 is pretty rare, especially when its business involves something as basic as extracting iron ore and coal from the ground. When it also happens to be the dominant company in its industry, it may seem too good to be true. However, the only question is whether you can muster the patience to own it throughout the business cycles. Fortunately, DRIP investors are known for their patience, not to mention their appreciation for fundamental value. Learn more about this financial newsletter at Vita Nelson's MoneyPaper. 
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