Algoma Steel Group (NASDAQ:ASTL) Is Paying Out A Dividend Of CA$0.05

The board of Algoma Steel Group Inc. (NASDAQ:ASTL) has announced that it will pay a dividend of CA$0.05 per share on the 24th of July. This payment means that the dividend yield will be 2.8%, which is around the industry average.

View our latest analysis for Algoma Steel Group

Algoma Steel Group's Earnings Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, Algoma Steel Group was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share is forecast to fall by 49.5% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 14%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Algoma Steel Group Doesn't Have A Long Payment History

Without a track record of dividend payments, we can't make a judgement on how stable it has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. Algoma Steel Group has seen EPS rising for the last five years, at 111% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 4 warning signs for Algoma Steel Group (2 make us uncomfortable!) that you should be aware of before investing. 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.