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Readers hoping to buy Reliance Steel & Aluminum Co. (NYSE:RS) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Reliance Steel & Aluminum's shares before the 27th of May to receive the dividend, which will be paid on the 11th of June.
The company's upcoming dividend is US$0.69 a share, following on from the last 12 months, when the company distributed a total of US$2.75 per share to shareholders. Looking at the last 12 months of distributions, Reliance Steel & Aluminum has a trailing yield of approximately 1.7% on its current stock price of $165.93. 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.
See our latest analysis for Reliance Steel & 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. That's why it's good to see Reliance Steel & Aluminum paying out a modest 28% of its earnings. A useful secondary check can be to evaluate whether Reliance Steel & Aluminum generated enough free cash flow to afford its dividend. It paid out 17% of its free cash flow as dividends last year, which is conservatively low.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Reliance Steel & Aluminum's earnings per share have been growing at 17% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.