Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Steel Authority of India Limited (NSE:SAIL) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 22nd of August in order to be eligible for this dividend, which will be paid on the 2nd of September.
Steel Authority of India's upcoming dividend is ₹0.50 a share, following on from the last 12 months, when the company distributed a total of ₹0.50 per share to shareholders. Last year's total dividend payments show that Steel Authority of India has a trailing yield of 1.4% on the current share price of ₹36.2. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! 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. Steel Authority of India is paying out just 11% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Steel Authority of India's earnings per share have dropped 6.4% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Steel Authority of India's dividend payments per share have declined at 17% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
The Bottom Line
Is Steel Authority of India worth buying for its dividend? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
Curious what other investors think of Steel Authority of India? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
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.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.