JSW Steel (NSE:JSWSTEEL) Has Announced That Its Dividend Will Be Reduced To ₹2.80

JSW Steel Limited's (NSE:JSWSTEEL) dividend is being reduced from last year's payment covering the same period to ₹2.80 on the 24th of August. Based on this payment, the dividend yield will be 0.3%, which is lower than the average for the industry.

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JSW Steel's Future Dividend Projections Appear Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, JSW Steel was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 4.4%, so there isn't too much pressure on the dividend.

See our latest analysis for JSW Steel

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the dividend has gone from ₹1.10 total annually to ₹2.80. This works out to be a compound annual growth rate (CAGR) of approximately 9.8% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. JSW Steel has seen earnings per share falling at 3.0% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On JSW Steel's Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for JSW Steel you should be aware of, and 1 of them is potentially serious. Is JSW Steel not quite the opportunity you were looking for? Why not check out our selection of top 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.