In This Article:
The board of Vulcan Steel Limited (ASX:VSL) has announced that it will pay a dividend on the 10th of October, with investors receiving NZ$0.1389 per share. Based on this payment, the dividend yield will be 3.0%, which is lower than the average for the industry.
Check out our latest analysis for Vulcan Steel
Vulcan Steel's Dividend Is Well Covered By Earnings
Even a low dividend yield can be attractive if it is sustained for years on end. The last payment made up 79% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.
Looking forward, earnings per share is forecast to rise by 152.2% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 35% which brings it into quite a comfortable range.
Vulcan Steel's Dividend Has Lacked Consistency
Even in its short history, we have seen the dividend cut. The dividend has gone from an annual total of NZ$0.55 in 2021 to the most recent total annual payment of NZ$0.24. Dividend payments have fallen sharply, down 56% over that time. A company that decreases its dividend over time generally isn't what we are looking for.
Dividend Growth May Be Hard To Achieve
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Earnings has been rising at 2.1% per annum over the last five years, which admittedly is a bit slow. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.
In Summary
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Vulcan Steel is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Vulcan Steel has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about. Is Vulcan Steel not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.