Algoma Steel Group (NASDAQ:ASTL) Has Announced A Dividend Of CA$0.05

The board of Algoma Steel Group Inc. (NASDAQ:ASTL) has announced that it will pay a dividend on the 19th of July, with investors receiving CA$0.05 per share. This payment means that the dividend yield will be 2.9%, which is around the industry average.

View our latest analysis for Algoma Steel Group

Algoma Steel Group's Earnings Easily Cover The Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Algoma Steel Group is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share could rise by 71.1% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 12% by next year, which we think can be pretty sustainable going forward.

Algoma Steel Group Is Still Building Its Track Record

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 2 years, which isn't that long in the grand scheme of things. Since 2022, the dividend has gone from CA$0.249 total annually to CA$0.273. This works out to be a compound annual growth rate (CAGR) of approximately 4.7% a year over that time. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Algoma Steel Group has grown earnings per share at 71% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Algoma Steel Group's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Just as an example, we've come across 3 warning signs for Algoma Steel Group you should be aware of, and 1 of them is potentially serious. 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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