Last update on 2024-06-27

Steel Dynamics (STLD) - Dividend Analysis (Final Score: 6/8)

Steel Dynamics (STLD) dividend analysis: comprehensive 8-criteria score of 6/8, evaluating performance, stability, growth rate, payout, and coverage.

Short Analysis - Dividend Score: 6

We're running Steel Dynamics (STLD) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

dividend yield and why it is important to consider

Steel Dynamics (STLD) currently has a dividend yield of 1.4395%, which is significantly lower than the industry average yield of 2.98%. Looking at the dividend yield trends over the past 20 years, it's evident that STLD's yield has fluctuated significantly, peaking at 3.1306% during the financial crisis in 2008. Despite substantial increases in stock price, particularly in recent years (e.g., $11.18 in 2008 to $118.1 in 2023), the dividend yield has not kept pace, dipping towards the current level. For income-focused investors, this is a negative trend, indicating that while the company is growing, the proportional return on dividends is not as attractive compared to its peers.

Average annual Growth Rate higher than 5% in the last 20 years?

Evaluating the Dividend Growth Rate over the past 20 years provides insight into STLD's commitment to returning value to shareholders through dividends. A consistent growth rate above 5% typically indicates a strong and growing company profitability and cash flow.

Looking at Steel Dynamics' Dividend Per Share Ratio (DPSR) data from 2003 to 2023, we see some significant variances. In some years, the DPSR growth rate was extremely high, exceeding 30% in 5 years. Conversely, there are years with negative growth rates, reflecting reductions in dividend payments. The average DPSR across these two decades stands at approximately 20.54%, significantly surpassing the 5% benchmark. Despite the fluctuations, the long-term average growth rate being above 5% is a positive indicator of the company's dividend strategy. This trend showcases STLD’s overall strength and the ability to generate sufficient cash flow to not only sustain but grow its dividend payments, albeit with some volatility.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio measures the percentage of earnings distributed as dividends to shareholders. A payout ratio below 65% over the long term is considered sustainable.

Steel Dynamics (STLD) exhibits a highly erratic payout ratio over the past 20 years, with an average payout ratio of -18.90%, well below the 65% threshold. However, special attention should be given to certain years such as 2009 and 2015, where abnormal figures like -796.5686% and -102.526% skewed the average. Discounting these anomalous data points, the trend largely remains within a conservative threshold, indicating that in terms of sustainability, STLD's payout ratio is within an acceptable range. This is a favorable trend as it suggests prudent profit retention for future growth. However, the volatility highlighted may cause concerns regarding dividend stability for risk-averse investors.

Dividends Well Covered by Earnings?

Explain the criterion for Steel Dynamics (STLD) and why it is important to consider

A company's ability to cover its dividends with earnings is crucial as it indicates financial health and sustainability. If earnings per share (EPS) are significantly higher than dividends per share (DPS), the dividends are well-covered, suggesting that the company is generating sufficient profitability to return capital to shareholders without compromising growth or financial stability.

Dividends Well Covered by Cash Flow?

showing how well the company's dividends are covered by its free cash flow.

Steel Dynamics (STLD) has been inconsistent in terms of how well its dividends are covered by free cash flow over the years. Starting with a negative free cash flow in 2003, the company showed significant improvements by achieving a 0.756 coverage ratio in 2013, indicating that the free cash flow was 75.6% more than the dividend payout. However, this coverage dropped drastically in 2020 to nearly -0.99, meaning the company had negative free cash flow juxtaposed against its dividend payouts. While 2022 showed a small rebound to 0.067 coverage, this ratio is extremely low. An ideal coverage ratio should be well above 1, implying the company generates more than enough free cash flow to cover dividends. Steel Dynamics needs to stabilize its free cash flow and ensure it consistently covers its growing dividend commitments to maintain investor confidence.

Stable Dividends Since the Company Began Paying Dividends?

Explain the criterion for Steel Dynamics (STLD) and why it is important to consider

Criterion 4: Stable Dividends Over the Past 20 Years. Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

Dividends Paid for Over 25 Years?

Explain the criterion for Steel Dynamics (STLD) and why it is important to consider

Criterion 6 evaluates whether a company has been able to pay dividends consistently for over 25 years. This signifies the financial stability and shareholder value creation of the company.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Steel Dynamics (STLD) and why it is important to consider

Reliable stock repurchases are important as they indicate a company's commitment to returning value to shareholders. Repurchasing shares can signal management's confidence in the company's future prospects and its ability to generate cash flow. Moreover, reducing the number of outstanding shares may increase earnings per share (EPS), which can, in turn, boost the stock price. Over the past 20 years, Steel Dynamics has shown reliability in its repurchase program during specific periods.