Vulcan Steel's (ASX:VSL) Dividend Will Be NZ$0.1389

Vulcan Steel Limited's (ASX:VSL) investors are due to receive a payment of NZ$0.1389 per share on 10th of October. This means that the annual payment is 3.4% of the current stock price, which is lower than what the rest of the industry is paying.

View our latest analysis for Vulcan Steel

Vulcan Steel's Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. The last payment made up 79% of earnings, but cash flows were much higher. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Over the next year, EPS is forecast to expand by 152.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 35%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Vulcan Steel's Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. Since 2021, the dividend has gone from NZ$0.55 total annually to NZ$0.24. Dividend payments have fallen sharply, down 56% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Earnings per share has been crawling upwards at 2.1% per year. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.

Our Thoughts On Vulcan Steel's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 identified 3 warning signs for Vulcan Steel (1 is a bit unpleasant!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.