Algoma Steel Group Inc. (NASDAQ:ASTL) will pay a dividend of CA$0.05 on the 27th of September. This means the annual payment will be 2.1% of the current stock price, which is lower than the industry average.

View our latest analysis for Algoma Steel Group

Algoma Steel Group Doesn't Earn Enough To Cover Its Payments

Even a low dividend yield can be attractive if it is sustained for years on end. Despite not generating a profit, Algoma Steel Group is still paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

Over the next year, EPS is forecast to expand by 138.1%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.

Algoma Steel Group Is Still Building Its Track Record

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. Since 2021, the annual payment back then was CA$0.249, compared to the most recent full-year payment of CA$0.274. This means that it has been growing its distributions at 3.2% 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.

Dividend Growth Is Doubtful

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. In the last five years, Algoma Steel Group's earnings per share has shrunk at approximately 10.0% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Algoma Steel Group's Dividend Doesn't Look Great

Overall, while some might be pleased that the dividend wasn't cut, we think this may help Algoma Steel Group make more consistent payments in the future. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. We don't think that this is a great candidate to be an income stock.