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There's A Lot To Like About Steel Dynamics' (NASDAQ:STLD) Upcoming US$0.42 Dividend

Steel Dynamics, Inc. (NASDAQ:STLD) stock is about to trade ex-dividend in four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Steel Dynamics' shares before the 30th of March in order to receive the dividend, which the company will pay on the 14th of April.

The company's upcoming dividend is US$0.42 a share, following on from the last 12 months, when the company distributed a total of US$1.36 per share to shareholders. Looking at the last 12 months of distributions, Steel Dynamics has a trailing yield of approximately 1.6% on its current stock price of $108.39. 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! As a result, readers should always check whether Steel Dynamics has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Steel Dynamics

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Steel Dynamics is paying out just 6.5% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Steel Dynamics generated enough free cash flow to afford its dividend. Luckily it paid out just 6.7% of its free cash flow last year.

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It's positive to see that Steel Dynamics'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.

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historic-dividend

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Steel Dynamics has grown its earnings rapidly, up 46% a year for the past five years. Steel Dynamics earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Steel Dynamics has delivered an average of 16% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Has Steel Dynamics got what it takes to maintain its dividend payments? We love that Steel Dynamics is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Steel Dynamics for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Steel Dynamics and you should be aware of it before buying any shares.

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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