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The board of Radius Recycling, Inc. (NASDAQ:RDUS) has announced that it will pay a dividend on the 26th of November, with investors receiving $0.1875 per share. The dividend yield will be 3.8% based on this payment which is still above the industry average.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Radius Recycling's stock price has increased by 46% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
See our latest analysis for Radius Recycling
Radius Recycling's Distributions May Be Difficult To Sustain
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Even though Radius Recycling is not generating a profit, it is still paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.
Over the next year, EPS might fall by 36.9% based on recent performance. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.
Radius Recycling Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The most recent annual payment of $0.75 is about the same as the annual payment 10 years ago. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.
Dividend Growth Potential Is Shaky
Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though Radius Recycling's EPS has declined at around 37% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.
The Dividend Could Prove To Be Unreliable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would be a touch cautious of relying on this stock primarily for the dividend income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 4 warning signs for Radius Recycling you should be aware of, and 3 of them are concerning. Is Radius Recycling not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.