The board of Olympic Steel, Inc. (NASDAQ:ZEUS) has announced that it will be paying its dividend of $0.16 on the 17th of March, an increased payment from last year's comparable dividend. Even though the dividend went up, the yield is still quite low at only 1.8%.
Check out our latest analysis for Olympic Steel
Olympic Steel's Projected Earnings Seem Likely To Cover Future Distributions
If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, Olympic Steel was paying only paying out a fraction of earnings, but the payment was a massive 170% of cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.
Over the next year, EPS is forecast to expand by 24.3%. If the dividend continues on this path, the payout ratio could be 29% by next year, which we think can be pretty sustainable going forward.
Olympic Steel Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the annual payment back then was $0.08, compared to the most recent full-year payment of $0.64. This implies that the company grew its distributions at a yearly rate of about 23% over that duration. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Olympic Steel has grown earnings per share at 44% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.
Our Thoughts On Olympic Steel's Dividend
In summary, while it's always good to see the dividend being raised, we don't think Olympic Steel's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Olympic Steel is a great stock to add to your portfolio if income is your focus.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for Olympic Steel (1 doesn't sit too well with us!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.