The board of Bisalloy Steel Group Limited (ASX:BIS) has announced that it will pay a dividend of A$0.08 per share on the 28th of March. The dividend yield will be 9.7% based on this payment which is still above the industry average.

See our latest analysis for Bisalloy Steel Group

Estimates Indicate Bisalloy Steel Group's Could Struggle to Maintain Dividend Payments In The Future

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Bisalloy Steel Group's dividend made up quite a large proportion of earnings but only 68% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Over the next year, EPS is forecast to expand by 21.9%. If the dividend continues on its recent course, the payout ratio in 12 months could be 95%, which is a bit high and could start applying pressure to the balance sheet.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the dividend has gone from A$0.04 total annually to A$0.325. This implies that the company grew its distributions at a yearly rate of about 23% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Bisalloy Steel Group's Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Bisalloy Steel Group has seen EPS rising for the last five years, at 33% per annum. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Bisalloy Steel Group hasn't been doing.

Our Thoughts On Bisalloy Steel Group's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Bisalloy Steel Group's payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Bisalloy Steel Group is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Bisalloy Steel Group that you should be aware of before investing. Is Bisalloy Steel Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.