Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 12th of August, you won't be eligible to receive this dividend, when it is paid on the 27th of August.
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. Last year's total dividend payments show that Schnitzer Steel Industries has a trailing yield of 3.1% on the current share price of $24.48. 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.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Schnitzer Steel Industries is paying out just 20% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Schnitzer Steel Industries generated enough free cash flow to afford its dividend. Fortunately, it paid out only 27% of its free cash flow in the past year.
It's positive to see that Schnitzer Steel Industries'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.
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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Schnitzer Steel Industries has grown its earnings rapidly, up 69% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Schnitzer Steel Industries has delivered an average of 27% per year annual increase in its dividend, based on the past 10 years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Should investors buy Schnitzer Steel Industries for the upcoming dividend? We love that Schnitzer Steel Industries is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Schnitzer Steel Industries looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Curious what other investors think of Schnitzer Steel Industries? See what analysts 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.
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