Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Bisalloy Steel Group Limited (ASX:BIS) is about to go ex-dividend in just 4 days. You can purchase shares before the 3rd of November in order to receive the dividend, which the company will pay on the 27th of November.
Bisalloy Steel Group's next dividend payment will be AU$0.05 per share. Last year, in total, the company distributed AU$0.05 to shareholders. Last year's total dividend payments show that Bisalloy Steel Group has a trailing yield of 3.5% on the current share price of A$1.41. If you buy this business for its dividend, you should have an idea of whether Bisalloy Steel Group's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Bisalloy Steel Group's payout ratio is modest, at just 34% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Bisalloy Steel Group paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. 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 Bisalloy Steel Group has grown its earnings rapidly, up 21% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past seven years, Bisalloy Steel Group has increased its dividend at approximately 3.2% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Bisalloy Steel Group is keeping back more of its profits to grow the business.
To Sum It Up
From a dividend perspective, should investors buy or avoid Bisalloy Steel Group? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. All things considered, we are not particularly enthused about Bisalloy Steel Group from a dividend perspective.
On that note, you'll want to research what risks Bisalloy Steel Group is facing. Every company has risks, and we've spotted 5 warning signs for Bisalloy Steel Group (of which 1 doesn't sit too well with us!) you should know about.
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.
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. 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.
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