Steel Authority of India (NSE:SAIL) Has Announced A Dividend Of ₹1.00

Steel Authority of India Limited (NSE:SAIL) will pay a dividend of ₹1.00 on the 26th of October. Even though the dividend went up, the yield is still quite low at only 1.5%.

See our latest analysis for Steel Authority of India

Steel Authority of India's Future Dividend Projections Appear 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. Prior to this announcement, Steel Authority of India's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to expand by 45.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 20%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was ₹2.42, compared to the most recent full-year payment of ₹2.00. The dividend has shrunk at around 1.9% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Steel Authority of India Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Steel Authority of India has seen EPS rising for the last five years, at 9.1% per annum. Steel Authority of India definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Steel Authority of India will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Steel Authority of India has 3 warning signs (and 1 which is a bit concerning) we think you should know about. 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.