Q. When will my Alcoa Inc. shares revive? — P.N., via the Internet

A. Prospects for the aluminium producer that ranks No. 1 in the US and No. 3 in the world are dependent upon improvement in the global economy.

Aluminium is a commodity business that fluctuates with the needs of industries such as autos, aerospace, construction and packaging. Among Alcoa's high-profile customers are General Motors Corp., Ford Motor Co., Boeing Co. and Airbus SA.

The company expects worldwide aluminium consumption to decline two percent this year, primarily because of economic slowdowns in China, North America and Europe.

Alcoa plans to cut 13,500 jobs by year-end, reduce its output and capital spending, and sell four of its money-losing, consumer-related businesses.

Shares of Alcoa (AA) are down 42 percent this year following last year's 69 percent decline. It had a net loss of $1.19 billion in the fourth quarter on excess supply and weak demand, plus sizeable one-time charges.

Alcoa is in good financial health and capable of handling its debt. But several analysts say its dividend could be reduced or eliminated unless aluminium prices rebound. It last cut its dividend in 1997.

The firm produces aluminium, fabricated aluminium and the oxide ceramic material known as alumina used in an array of items such as spark plugs, cutting tools and hip-joint replacements.

The industrialisation of emerging markets is a positive in the long run that will provide a boost to aluminium prices. Focusing its primary growth on its mining and refining business, Alcoa is negotiating contracts with countries around the world.

According to Thomson Reuters, analyst ratings on the shares consist of two "strong buys," three "buys," eight "holds" and three "underperforms".

Klaus Kleinfeld, who had a successful 20-year career at German conglomerate Siemens AG before coming to Alcoa in 2007, was promoted from Alcoa's chief operating officer to its chief executive in May. He has earned a reputation for coaxing profits out of underperforming businesses.

The expected five-year annualised growth rate for Alcoa earnings is 20 percent, versus nine percent forecast for its peers.

Q. What are your expectations for Third Avenue Small-Cap Value Fund? — T.M., via the Internet

A. The fund takes a conservative approach to small-capitalisation stocks and prefers patient investors.

It has increased its stake in energy-related and real estate-related stocks. In addition, one-fourth of its portfolio is in foreign stocks.

It is always willing to hold a fair amount of cash at times when it can't seem to find bargains. It was closed to new money for a two-year period that ended in mid-2008.

Those are not the strategies of the run-of-the-mill Russell 2000-style portfolio.

The $1.12 billion Third Avenue Small-Cap Value Fund (TASCX) is down 41 percent over the past 12 months to rank below the midpoint of small-cap growth and value funds. Its three-year annualised decline of 15 percent places it in the upper one-third of its peers.

"We recommend Third Avenue Small-Cap Value Fund because it is a good diversifier for those with larger-cap portfolios," said Bridget Hughes, analyst with Morningstar Inc. in Chicago. "Curtis Jensen is a very smart, diligent manager who has proven to be a skilled small-cap investor with thoughtful research."

Jensen has been at the fund since its 1997 inception, becoming sole manager when co-manager Marty Whitman stepped down in 2001. Like its sibling Third Avenue Value Fund, which is run by Whitman, Third Avenue Small-Cap Value prefers cheap stocks with strong balance sheets.

One-fourth of portfolio is in industrial materials, with other concentrations in energy, financial services and technology hardware. Top holdings include Sapporo Holdings Ltd., Parco Inc., St. Mary Land & Exploration Co., Cimarex Energy Co., National Western Life Insurance Co., Alexander & Baldwin Inc., Encore Wire Corp., Tidewater Inc., Brookfield Asset Management Inc. and Synopsys Inc.

The "no-load" (no sales charge) fund requires a $10,000 minimum initial investment ($2,500 for an individual retirement account) and has an annual expense ratio of 1.1 percent.

Q. What's the difference between the dividend yield and the dividend payout ratio? How are they calculated and which is more important? — H.K., via the Internet

A. They serve different functions.

Dividend yield indicates how much a firm pays out in dividends each year relative to its share price. It shows how much cash you are receiving from your investment.

It is calculated by dividing the annual dividend per share by the share price. A company paying an annual dividend of $1 per share whose stock is trading at $20 has a dividend yield of 5 percent.

Meanwhile, the payout ratio indicates how much of the company's earnings it makes in a year are paid out in dividends. This shows how well its earnings support the dividend payments.

It is calculated by dividing the annual dividend per share by the earnings per share. For example, the payout ratio of Chevron is 22 percent, PepsiCo 46 percent and Duke Energy 88 percent. Utilities are dividend-oriented and typically have high payout ratios.

"If a company has a high payout ratio and earnings fall off, it might have to cut its dividend," said James Paulsen, chief investment officer with Wells Capital Management in Minneapolis. "But companies with a low payout ratio could take an earnings hit without having to lower their dividend."

Andrew Leckey answers questions only through the column. Address inquiries to Andrew Leckey, 555 N. Central Ave., Suite 302, Phoenix, AZ 85004-1248, or by e-mail at andrewinv@aol.com.