Yahoo Finance Should BlueScope Steel Limited (ASX:BSL) Be Part Of Your Income Portfolio?
Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, BlueScope Steel Limited (ASX:BSL) has been paying a dividend to shareholders. Today it yields 1.3%. Should it have a place in your portfolio? Let’s take a look at BlueScope Steel in more detail.
Check out our latest analysis for BlueScope Steel
Here’s how I find good dividend stocks
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
Is it the top 25% annual dividend yield payer?
Does it consistently pay out dividends without missing a payment of significantly cutting payout?
Has dividend per share amount increased over the past?
Can it afford to pay the current rate of dividends from its earnings?
Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
Does BlueScope Steel pass our checks?
The current trailing twelve-month payout ratio for the stock is 4.9%, which means that the dividend is covered by earnings. Going forward, analysts expect BSL’s payout to increase to 12% of its earnings, which leads to a dividend yield of around 1.5%. However, EPS is forecasted to fall to A$2.1 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Dividend payments from BlueScope Steel have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.
In terms of its peers, BlueScope Steel has a yield of 1.3%, which is on the low-side for Metals and Mining stocks.
Next Steps:
Now you know to keep in mind the reason why investors should be careful investing in BlueScope Steel for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three fundamental aspects you should look at:
Future Outlook: What are well-informed industry analysts predicting for BSL’s future growth? Take a look at our free research report of analyst consensus for BSL’s outlook.
Valuation: What is BSL worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether BSL is currently mispriced by the market.
Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
