Here's What We Like About BlueScope Steel's (ASX:BSL) Upcoming Dividend

By
Simply Wall St
Published
September 02, 2021
ASX:BSL
Source: Shutterstock

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see BlueScope Steel Limited (ASX:BSL) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase BlueScope Steel's shares before the 7th of September in order to be eligible for the dividend, which will be paid on the 13th of October.

The upcoming dividend for BlueScope Steel will put a total of AU$0.44 per share in shareholders' pockets, up from last year's total dividends of AU$0.31. 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! As a result, readers should always check whether BlueScope Steel has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for BlueScope Steel

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. BlueScope Steel is paying out just 13% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Luckily it paid out just 7.9% of its free cash flow 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.

historic-dividend
ASX:BSL Historic Dividend September 2nd 2021

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, BlueScope Steel's earnings per share have been growing at 19% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. BlueScope Steel has delivered an average of 2.6% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because BlueScope Steel is keeping back more of its profits to grow the business.

The Bottom Line

Is BlueScope Steel worth buying for its dividend? BlueScope Steel has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in BlueScope Steel for the dividends alone, you should always be mindful of the risks involved. For example - BlueScope Steel has 1 warning sign we think you should be aware of.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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