Algoma Steel Group Inc. (NASDAQ:ASTL) has announced that it will pay a dividend of CA$0.05 per share on the 19th of July. Based on this payment, the dividend yield will be 2.9%, which is fairly typical for the industry.

See our latest analysis for Algoma Steel Group

Algoma Steel Group's Dividend Is Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, Algoma Steel Group was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS could expand by 71.1% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 12% by next year, which is in a pretty sustainable range.

Algoma Steel Group Is Still Building Its Track Record

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The dividend has gone from an annual total of CA$0.249 in 2022 to the most recent total annual payment of CA$0.273. This means that it has been growing its distributions at 4.7% per annum over that time. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Algoma Steel Group has impressed us by growing EPS at 71% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for Algoma Steel Group you should be aware of, and 1 of them makes us a bit uncomfortable. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.