Russel Metals Inc.'s (TSE:RUS) investors are due to receive a payment of CA$0.38 per share on 15th of September. This makes the dividend yield 5.1%, which will augment investor returns quite nicely.
Russel Metals Doesn't Earn Enough To Cover Its Payments
If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Russel Metals was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.
EPS is set to fall by 81.7% over the next 12 months. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 115%, which is definitely a bit high to be sustainable going forward.
Russel Metals Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2012, the annual payment back then was CA$1.20, compared to the most recent full-year payment of CA$1.52. This implies that the company grew its distributions at a yearly rate of about 2.4% over that duration. 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.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. Russel Metals has impressed us by growing EPS at 35% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.
Russel Metals Looks Like A Great Dividend Stock
Overall, we like to see the dividend staying consistent, and we think Russel Metals might even raise payments in the future. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All of these factors considered, we think this has solid potential as a dividend stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Russel Metals that investors need to be conscious of moving forward. Is Russel Metals 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.
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