Worthington Steel, Inc. (NYSE:WS) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Worthington Steel, Inc. (NYSE:WS) stock is about to trade ex-dividend in four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Worthington Steel's shares before the 13th of December to receive the dividend, which will be paid on the 27th of December.

The company's next dividend payment will be US$0.16 per share. Last year, in total, the company distributed US$0.32 to shareholders. Based on the last year's worth of payments, Worthington Steel stock has a trailing yield of around 0.7% on the current share price of US$43.77. If you buy this business for its dividend, you should have an idea of whether Worthington Steel's dividend is reliable and sustainable. As a result, readers should always check whether Worthington Steel has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Worthington Steel

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Worthington Steel has a low and conservative payout ratio of just 19% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 9.5% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Worthington Steel's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why we're glad to see earnings per share up 7.8% over the past 12 months. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.

One year is a very short time frame in the pantheon of investing, so we wouldn't get too hung up on these numbers.

Unfortunately Worthington Steel has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

To Sum It Up

Should investors buy Worthington Steel for the upcoming dividend? Earnings per share growth has been growing somewhat, and Worthington Steel is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Worthington Steel is halfway there. Overall we think this is an attractive combination and worthy of further research.

Ever wonder what the future holds for Worthington Steel? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.