Stock Analysis

Steel & Tube Holdings' (NZSE:STU) Upcoming Dividend Will Be Larger Than Last Year's

NZSE:STU
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Steel & Tube Holdings Limited (NZSE:STU) will increase its dividend from last year's comparable payment on the 23rd of September to NZ$0.0816. This will take the dividend yield to an attractive 9.9%, providing a nice boost to shareholder returns.

See our latest analysis for Steel & Tube Holdings

Steel & Tube Holdings Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Steel & Tube Holdings was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. This is a pretty unsustainable practice, and could be risky if continued for the long term.

Looking forward, earnings per share is forecast to fall by 32.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 131%, which could put the dividend in jeopardy if the company's earnings don't improve.

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NZSE:STU Historic Dividend September 7th 2022

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from NZ$0.18 total annually to NZ$0.15. This works out to be a decline of approximately 1.8% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

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. Over the past five years, it looks as though Steel & Tube Holdings' EPS has declined at around 4.0% a year. 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. While Steel & Tube Holdings is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Steel & Tube Holdings (of which 2 are significant!) 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.