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There's A Lot To Like About Kaiser Aluminum Corporation's (NASDAQ:KALU) Upcoming US$0.67 Dividend

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Simply Wall St
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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Kaiser Aluminum Corporation (NASDAQ:KALU) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 23rd of January in order to receive the dividend, which the company will pay on the 14th of February.

Kaiser Aluminum's next dividend payment will be US$0.67 per share. Last year, in total, the company distributed US$2.40 to shareholders. Calculating the last year's worth of payments shows that Kaiser Aluminum has a trailing yield of 2.6% on the current share price of $104.94. If you buy this business for its dividend, you should have an idea of whether Kaiser Aluminum's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Kaiser 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. Kaiser Aluminum paid out a comfortable 40% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 30% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Kaiser 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.

NasdaqGS:KALU Historical Dividend Yield, January 18th 2020
NasdaqGS:KALU Historical Dividend Yield, January 18th 2020

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Kaiser Aluminum's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Earnings per share growth in recent times has not been a standout. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last ten years, Kaiser Aluminum has lifted its dividend by approximately 11% a year on average.

Final Takeaway

Should investors buy Kaiser Aluminum for the upcoming dividend? Earnings per share have been flat over this time, but we're intrigued to see that Kaiser Aluminum 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. Generally we like to see both low payout ratios and strong earnings per share growth, but Kaiser Aluminum is halfway there. It's a promising combination that should mark this company worthy of closer attention.

Wondering what the future holds for Kaiser Aluminum? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.