Reliance Steel & Aluminum (NYSE:RS) Could Be A Buy For Its Upcoming Dividend
Reliance Steel & Aluminum Co. (NYSE:RS) is about to trade ex-dividend in the next three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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. Thus, you can purchase Reliance Steel & Aluminum's shares before the 18th of August in order to receive the dividend, which the company will pay on the 2nd of September.
The company's upcoming dividend is US$0.88 a share, following on from the last 12 months, when the company distributed a total of US$3.50 per share to shareholders. Based on the last year's worth of payments, Reliance Steel & Aluminum stock has a trailing yield of around 1.8% on the current share price of $197.2. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for Reliance Steel & Aluminum
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Reliance Steel & Aluminum paid out just 10% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Reliance Steel & Aluminum generated enough free cash flow to afford its dividend. The good news is it paid out just 21% of its free cash flow in the last year.
It's positive to see that Reliance Steel & Aluminum's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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. It's encouraging to see Reliance Steel & Aluminum has grown its earnings rapidly, up 50% a year for the past five years. Reliance Steel & Aluminum looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Reliance Steel & Aluminum has delivered an average of 22% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
From a dividend perspective, should investors buy or avoid Reliance Steel & Aluminum? Reliance Steel & Aluminum has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. It's a promising combination that should mark this company worthy of closer attention.
In light of that, while Reliance Steel & Aluminum has an appealing dividend, it's worth knowing the risks involved with this stock. For instance, we've identified 2 warning signs for Reliance Steel & Aluminum (1 is a bit unpleasant) you should be aware of.
If you're in the market for strong dividend payers, we recommend checking 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.
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