Steel & Tube Holdings (NZSE:STU) Is Increasing Its Dividend To NZ$0.0816

Steel & Tube Holdings Limited (NZSE:STU) has announced that it will be increasing its dividend from last year's comparable payment on the 23rd of September to NZ$0.0816. This takes the dividend yield to 9.8%, which shareholders will be pleased with.

Check out our latest analysis for Steel & Tube Holdings

Steel & Tube Holdings' Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. Generally, we think that this would be a risky long term practice.

EPS is set to fall by 35.5% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could reach 86%, which is definitely on the higher side.

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. The annual payment during the last 10 years was NZ$0.18 in 2012, and the most recent fiscal year payment was NZ$0.15. The dividend has shrunk at around 1.8% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Steel & Tube Holdings May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Steel & Tube Holdings has seen earnings per share falling at 4.0% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Steel & Tube Holdings is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Steel & Tube Holdings (of which 2 are a bit concerning!) you should know about. Is Steel & Tube Holdings 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.