BlueScope Steel (ASX:BSL) Is Increasing Its Dividend To A$0.30

BlueScope Steel Limited (ASX:BSL) will increase its dividend from last year's comparable payment on the 15th of October to A$0.30. Even though the dividend went up, the yield is still quite low at only 3.0%.

See our latest analysis for BlueScope Steel

BlueScope Steel's Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. However, prior to this announcement, BlueScope Steel's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 8.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 35%, which is in the range that makes us comfortable with the sustainability of the dividend.

BlueScope Steel's Dividend Has Lacked Consistency

It's comforting to see that BlueScope Steel has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 9 years was A$0.06 in 2015, and the most recent fiscal year payment was A$0.60. This implies that the company grew its distributions at a yearly rate of about 29% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. BlueScope Steel hasn't seen much change in its earnings per share over the last five years.

Our Thoughts On BlueScope Steel's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for BlueScope Steel that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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