The board of BlueScope Steel Limited (ASX:BSL) has announced that it will pay a dividend of A$0.25 per share on the 26th of March. This means the annual payment will be 2.3% of the current stock price, which is lower than the industry average.

Check out our latest analysis for BlueScope Steel

BlueScope Steel's Earnings Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, BlueScope Steel's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 21.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 28%, which is in the range that makes us comfortable with the sustainability of the dividend. historic-dividend

BlueScope Steel's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of A$0.06 in 2015 to the most recent total annual payment of A$0.50. This implies that the company grew its distributions at a yearly rate of about 27% over that duration. BlueScope Steel has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though BlueScope Steel's EPS has declined at around 10% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.



Our Thoughts On BlueScope Steel's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for BlueScope Steel that investors should take into consideration. Is BlueScope 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.