It looks like Steel Dynamics, Inc. (NASDAQ:STLD) is about to go ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 30th of March will not receive this dividend, which will be paid on the 10th of April.
Steel Dynamics’s next dividend payment will be US$0.25 per share, and in the last 12 months, the company paid a total of US$0.96 per share. Based on the last year’s worth of payments, Steel Dynamics has a trailing yield of 4.8% on the current stock price of $20.87. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for Steel Dynamics
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Steel Dynamics paid out a comfortable 31% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 21% of its free cash flow in the last year.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That’s why it’s comforting to see Steel Dynamics’s earnings have been skyrocketing, up 35% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Steel Dynamics has delivered an average of 13% per year annual increase in its dividend, based on the past ten years of dividend payments. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Final Takeaway
Is Steel Dynamics worth buying for its dividend? We love that Steel Dynamics is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. It’s a promising combination that should mark this company worthy of closer attention.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, Steel Dynamics has 4 warning signs (and 1 which is a bit concerning) we think you should know about.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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