Reliance Steel & Aluminum Co. (NYSE:RS) Looks Interesting, And It's About To Pay A Dividend
It looks like Reliance Steel & Aluminum Co. (NYSE:RS) is about to go ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Reliance Steel & Aluminum's shares on or after the 17th of August, you won't be eligible to receive the dividend, when it is paid on the 1st of September.
The company's next dividend payment will be US$1.00 per share, and in the last 12 months, the company paid a total of US$4.00 per share. Based on the last year's worth of payments, Reliance Steel & Aluminum stock has a trailing yield of around 1.4% on the current share price of $282.13. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Reliance Steel & Aluminum
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. Reliance Steel & Aluminum has a low and conservative payout ratio of just 15% of its income after tax. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 13% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that Reliance Steel & Aluminum'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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Reliance Steel & Aluminum has grown its earnings rapidly, up 25% a year for the past five years. Reliance Steel & Aluminum earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Reliance Steel & Aluminum has delivered 15% dividend growth per year on average over the past 10 years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
From a dividend perspective, should investors buy or avoid Reliance Steel & Aluminum? Reliance Steel & Aluminum has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.
In light of that, while Reliance Steel & Aluminum has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 2 warning signs for Reliance Steel & Aluminum (1 can't be ignored!) that deserve your attention before investing in the shares.
A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.
