Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) is about to go ex-dividend in just three days. Investors can purchase shares before the 30th of October in order to be eligible for this dividend, which will be paid on the 16th of November.
Schnitzer Steel Industries's next dividend payment will be US$0.19 per share, and in the last 12 months, the company paid a total of US$0.75 per share. Calculating the last year's worth of payments shows that Schnitzer Steel Industries has a trailing yield of 3.5% on the current share price of $21.38. If you buy this business for its dividend, you should have an idea of whether Schnitzer Steel Industries's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. Schnitzer Steel Industries reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Thankfully its dividend payments took up just 49% of the free cash flow it generated, which is a comfortable payout ratio.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. Schnitzer Steel Industries was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Schnitzer Steel Industries has lifted its dividend by approximately 27% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Remember, you can always get a snapshot of Schnitzer Steel Industries's financial health, by checking our visualisation of its financial health, here.
To Sum It Up
Should investors buy Schnitzer Steel Industries for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. In summary, while it has some positive characteristics, we're not inclined to race out and buy Schnitzer Steel Industries today.
So while Schnitzer Steel Industries looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 1 warning sign for Schnitzer Steel Industries you should know about.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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.
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