Should You Buy Reliance Steel & Aluminum Co. (NYSE:RS) For Its Upcoming Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Reliance Steel & Aluminum Co. (NYSE:RS) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Reliance Steel & Aluminum's shares before the 26th of May to receive the dividend, which will be paid on the 10th of June.

The company's next dividend payment will be US$0.88 per share, on the back of last year when the company paid a total of US$3.50 to shareholders. Looking at the last 12 months of distributions, Reliance Steel & Aluminum has a trailing yield of approximately 2.0% on its current stock price of $178.46. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. 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

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Reliance Steel & Aluminum has a low and conservative payout ratio of just 11% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The good news is it paid out just 24% 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Reliance Steel & Aluminum has grown its earnings rapidly, up 45% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Reliance Steel & Aluminum looks like a promising growth company.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Reliance Steel & Aluminum has lifted its dividend by approximately 22% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Is Reliance Steel & Aluminum worth buying for its dividend? We love that Reliance Steel & Aluminum 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. There's a lot to like about Reliance Steel & Aluminum, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Reliance Steel & Aluminum is facing. Every company has risks, and we've spotted 2 warning signs for Reliance Steel & Aluminum (of which 1 is a bit concerning!) you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.