The board of Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) has announced that it will pay a dividend on the 25th of July, with investors receiving US$0.19 per share. This payment means the dividend yield will be 2.3%, which is below the average for the industry.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Schnitzer Steel Industries' stock price has reduced by 38% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.
Schnitzer Steel Industries' Dividend Is Well Covered By Earnings
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, Schnitzer Steel Industries was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.
Looking forward, earnings per share is forecast to fall by 23.9% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 13%, which is comfortable for the company to continue in the future.
Schnitzer Steel Industries Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the first annual payment was US$0.068, compared to the most recent full-year payment of US$0.75. This works out to be a compound annual growth rate (CAGR) of approximately 27% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. Schnitzer Steel Industries has impressed us by growing EPS at 36% per year over the past five years. 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.
Schnitzer Steel Industries Looks Like A Great Dividend Stock
In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for Schnitzer Steel Industries you should be aware of, and 1 of them doesn't sit too well with us. 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.