Fundamental analysis
POSCO is one of the world’s largest steel producers. The company originates from South Korea, so it is a representative of the Asian market. The company was founded in 1968. It focuses on the production of various steel products (plates, pipes, etc.), wires and other metallurgical products. POSCO supplies its products to Europe, the Middle East and Asia. Especially in Asia, there is still a high demand for steel products. The market conditions there are different from those in Europe or North America.
The shares are traded on the Korean, London, New York and Tokyo stock exchanges.
Steel production is a cyclical affair.
Korean steel market yields can rise by up to 35%, KOSPI yields by up to 29%.
POSCO’s turnover is growing steadily. Net profit is variable but still positive.
The company pays a dividend quarterly.
In Q1 2023, the company made an interesting move. POSCO plans to pay 50-60% of the parent company’s free cash flow as dividend. It has also set a minimum dividend per share irrespective of earnings. POSCO will pay a minimum of KRW 10,000 (approx. USD 7). The company plans to review the measure every three years. Since the announcement, the share price has fallen by more than 10%, but is still up 100% since the beginning of the year.
Results
The company increases its volume of Greenate Steel, which is steel produced by a low carbon dioxide process.
The company sees increasing demand for green cars at the expense of internal combustion engine cars. It is adapting its production to this with the aim of being ready in 2030.
Technical analysis
The company is extremely illiquid, the number of shares traded daily is very small. Daily volume is in the tens of thousands of shares. The stock is prone to large gaps.
Moving averages indicate an uptrend. However, this is due to the strong run-up at the time of the dividend strategy announcement. Fundamental analysis always takes precedence over technical analysis. The subsequent price correction has brought the RSI back to the neutral zone. There is no historical resistance near the current price. However, $100 per share always acts as support or resistance regardless of historical trends.
Conclusion
A minimum guaranteed dividend for the next three years can be a very interesting idea for long-term dividend investors. The share price can oscillate, this is due to the cyclical style of the metals business. However, POSCO is trying to sustain its business, the share price was rising even before the announcement of the new dividend strategy. Also, the geopolitical situation in South Korea is quite different from Europe or America. This may play into the hands of investors looking to invest in Asian markets.
Technical analysis is somewhat biased by the strong rise over the past few months and the influence of strong fundamentals.