On Monday, Dec. 12, the Gillard government began accepting applications from companies seeking “competitive assistance” under Australia’s Steel Transformation Plan (STP), an arrangement at the federal level to help domestic producers cope with “significant challenges…including a high Australian dollar, continued weak domestic demand, higher raw material prices and excess supply in international steel markets.”

The advance facility under the STP was scheduled to come into effect in 2012, but was brought forward by the government following “Royal Assent” to the Clean Energy Bills and the Steel Transformation Plan Bill.

Although steelmakers have been suffering for sometime, the early move is likely as much about politics as it is about providing a real helping hand. The Labour government will now be able to draw a sharp contrast with the opposition coalition, whose leader Tony Abbott opposed the assistance from the start.

Minister for Climate Change and Energy Efficiency Greg Combet noted that the government has worked closely with the steel industry to put together the AUD300 million STP, including the AUD164 million assistance fund, as a means to help the transition to a low-carbon future. As of this week eligible companies can begin drawing down advances of their future STP entitlements, which are intended to help the industry become more competitive and sustainable.

BlueScope Steel Ltd (ASX: BSL, OTC: BLSFF) has welcomed the government’s announcement that the STP’s assistance fund is open for business. Prime Minister Julia Gillard had noted when announcing the STP in August that BlueScope would be eligible for up to AUD100 million; Managing Director and CEO Paul O’Malley said his company will apply for the early advance, describing the STP as “tangible evidence of the importance the government places on having a viable, competitive and innovative domestic steel industry in this country.”

BlueScope’s long journey back to profitability also includes an effort to raise AUD600 million in equity capital, an offering the market was less than enthusiastic to receive this week. The company is also considering “potential asset realization opportunities” from its USD631 million book of land and buildings around the world. Mr. O’Malley noted, too, that a restructuring of the company’s Australian operations is underway.

Raw materials prices have eased a bit, which will help margins, and if steel prices improve BlueScope stock could bounce off its extremely low bottom. But there are a metric ton of moving parts here, too many, in fact, for income-focused investors; speculators may want to place a bet on AUD0.40 as its bottom. But BlueScope remains a sell at these levels.

How to Place an Order

If you’re not buying AE recommendations on the Australian Securities Exchange (ASX), rather focusing your efforts on the US over-the-counter market, your best course is to use “buy-limit” orders to ensure your trade is executed at a price below our recommended buy-under targets.

Volume for OTC-traded stocks, and even some foreign stocks traded on the New York Stock Exchange, is often quite low. Although our focus is on buying and holding high-quality businesses for the long term, we do want to make sure we buy at value-based prices, not at some execution point that helps broker and trader clear a nice chunk of a too-huge spread.

A “buy-limit” order is an order to buy stock at a specific price or better. A buy-limit order can only be executed at the limit price or lower; a “sell-limit” order, conversely, can only be executed at the limit price or higher. A limit order isn’t guaranteed to execute; it can only be filled if the stock’s market price reaches the limit price. Although limit orders don’t guarantee execution, they help ensure you don’t pay more than a pre-determined price for a stock.

Dividend Watch List

The business of Australian Edge is to identify businesses capable of paying sustainable and growing dividends over time. The corollary of this mandate is to identify those businesses that are not capable sustaining or growing dividends.

The Watch List is unchanged in composition this month, as only Aditya Birla Minerals Ltd (ASX: ADY, OTC: ABWAF) had news of significance among How They Rate companies at risk of appearing here.

Basic Materials

Aditya Birla Minerals Ltd (ASX: ADY, ABWAF)–Having declared its first dividend since May 2008–AUD0.09 per share paid in June 2011–Aditya announced that its directors “not recommend the payment of a dividend in respect of the first half of 2012.” Following a downgrade of production guidance at a key project, the stock gets a downgrade here, too. Hold.

BlueScope Steel Ltd (ASX: BSL, OTC: BLSFF)–Negative payout ratio, onerous union burden on cash flow, unfavorable operating environment and a high debt burden make for an ominous stew for a company with one recent dividend suspension. New efforts to raise capital, hit up the government reek of desperation. Sell.

Iluka Resources Ltd (ASX: ILU, OTC: ILKAF)–Stock is riding high, and recent results have been solid. But rare-earths miner just recently restored the dividend after a three-year hiatus, and the payout ratio is on the high side. Negotiated price increases suggest, however, long-term durability and earn a target increase. Buy < USD16.50.

Kingsgate Consolidated Ltd (ASX: KCN, KSKGF)–Already patchy gold-mining operations have been hurt by “50-year rains” inundating Thailand operations, which doesn’t bode well for troublesome cash costs. Hold.

OneSteel Ltd (ASX: OST, OTC: OSTLF)–Many headwinds force management to trim fiscal 2012 guidance. Dividend is down more than 20 percent since 2008, including recent reduction to AUD0.04 from prior AUD0.06 per share “final” payment. Hold.

Consumer Goods

Goodman Fielder Ltd (ASX: GFF, OTC: GDFLF)–Successful refinancing at lower cost relieves some pressure on cash flow. A negative payout ratio and a record that shows four cuts over the past five years earn it a spot on the List. But this food retailer’s dividend demonstrates a not-unusual, more flexible approach to dividends often seen in Europe and Australia as well the impact of varying levels of “franking,” or tax covered by the paying company. The refinancing earns it an upgrade from “sell.” Hold.

Consumer Services

APN News & Media Holdings Ltd (ASX: APN, OTC: None)–Advertising fundamentals continue to deteriorate. Dividend is down 30 percent over the past three years, including two cuts. Sell.

David Jones Ltd (ASX: DJS, ADR: DJNSY)–Has cut twice during the past five years to a level that should hold barring a complete, unlikely collapse of the Australian economy. Ominous management guidance tone suggesting potential overabundance of caution is sufficient cause for inclusion on the List, though. Hold.

Seven West Media Ltd (ASX: SWM, OTC: None)–History of cuts, high yield, big payout ratio and continuing challenges of advertising dependence make another dividend reduction more likely than not, despite strength of Seven network. Hold.

TABCORP Holdings Ltd (ASX: TAH, OTC: TABCF)–Has cut three times in recent years, including with most recent payment, demonstrating it, too, has a flexible policy that changes with economic conditions. Hold.

Industrials

CSR Ltd (ASX: CSR, CSRLF)–Cost-cutting, lower interest costs mask impact of weak environment for building-products supplier. Return to health of residential real estate market will do this otherwise solid outfit well. Hold.

The ADR List

Dividend Watch List member David Jones Ltd (ASX: DJS, ADR: DJNSY) now has an unsponsored American Depositary Receipt (ADR) trading stateside. It’s worth one underlying share traded on the Australian Securities Exchange (ASX). We’ll continue to track the How They Rate coverage universe and beyond for Australia-based companies that afford US investors the convenience of ADR investing, either through their own doing or via the effort of an interested financial institution.

Here again is our primer on Australian stocks, US over-the-counter (OTC) symbols and ADRs.

The great majority of the companies comprising How They Rate have US symbols, many because they actively seek to raise capital here on their own accord. That means they comply, to varying degrees, with US Securities and Exchange Commission filing requirements for foreign companies and with US accounting principles. Others trade here because a sponsoring institution has effectively created a secondary market for the shares, without the underlying company’s active participation.

Shares traded on US over-the-counter (OTC) markets bearing a final “F” in their five-letter symbols are basically home-listed shares trading in a market created by and for US institutions. Individuals can buy and sell here, too. Prices basically reflect Australian Securities Exchange (ASX) prices and also reflect changes in the relationship between the US dollar and the Australian dollar. One “F” share represents one ASX-listed share. The dividend you receive in respect of an “F” share is the dividend paid in respect of the ASX-listed share, adjusted for currency effects.

An American Depositary Receipt (ADR) is a certificate that represents stock of a foreign company. ADRs are listed on US stock exchanges or the OTC Bulletin Board or Pink Sheets. Those that trade OTC have five-letter symbols ending with the letter “Y.” All transactions, including dividend payments, are conducted in US dollars.

One ADR certificate may represent one or more shares of the foreign stock; it can also represent a fraction of a share. For example, one Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY) ADR, which trades under the symbol TLSYY, is worth five ordinary shares that trade on the Australian Securities Exchange under the symbol TLS. Australia & New Zealand Banking Group Ltd’s (ASX: ANZ, OTC: ANEWF, ADR: ANZBY) ADR, ANZBY, is worth one Australia-listed ANZ share.

Because many ADRs don’t have a one-to-one ratio between the depositary receipts and the shares of stock, financial ratios are often not included in stock listings. Data in Australian Edge Portfolio tables and How They Rate is derived based on Australian Securities Exchange symbols so is as complete as you’ll find anywhere.

Foreign companies themselves often “sponsor” the creation of their own ADRs. These are called “sponsored ADRs.” There are three levels of sponsorship.

A Level I sponsored ADR is created by a company because it wants to extend the market for its securities to the US. It does not, however, want to register with the Securities and Exchange Commission (SEC) or conform to generally accepted accounting principles (GAAP). Level I ADRs trade on the OTC Bulletin Board or Pink Sheets trading systems, usually but not exclusively by institutional investors. Australia & New Zealand Banking Group’s is a Level I ADR.

Level II and Level III sponsored ADRs must register with the SEC, and financial statements must be reconciled to generally accepted accounting principles. A Level II ADR requires partial compliance with GAAP, while a Level III ADR requires complete compliance. A Level III sponsorship is require if the ADR is a primary offering and is used to raise capital for the company. Only Level II and Level III sponsored ADRs can be listed on the New York Stock Exchange (NYSE), the American Stock Exchange or Nasdaq. Telstra Corp sponsors a Level III ADR in the US, meaning it’s actively seeking to raise capital here.

An unsponsored ADR is created by a US investment bank or brokerage that buys ordinary shares on the underlying company’s home market then deposits them in a local custodian bank. This depositary bank then issues shares that represent an interest in the stocks and handles most of the transactions with American investors, serving both as transfer agent and registrar for the ADR.

The shares of the foreign stock held in the custodian bank are called “American Depositary Shares,” although this term is sometimes used as a synonym for “American Depositary Receipts.” Unsponsored ADRs can’t be listed on the major American stock exchanges because they aren’t registered with the SEC and lack other necessary qualifications.

The price of an ADR is determined by supply and demand but will generally track the price of the underlying ordinary share. When dividends are paid, the custodian bank receives it and withholds any foreign taxes, exchanges it for US dollars and then sends it to the depositary bank, which then sends it to the investors.

The US depositary bank handles most of the interaction with US investors, including rights offerings, stock splits and stock dividends. Sponsored ADR investors may receive communications, including financial statements, directly from the company.

Here is a list of companies in the How They Rate coverage universe that have an ADR listing in the US.