The board of Astec Industries, Inc. (NASDAQ:ASTE) has announced that it will pay a dividend of $0.13 per share on the 31st of March. This means the dividend yield will be fairly typical at 1.5%.

Check out our latest analysis for Astec Industries

Astec Industries' Payment Could Potentially Have Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, the company was paying out 276% of what it was earning. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

Looking forward, earnings per share is forecast to rise exponentially over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 48% which is fairly sustainable.

Astec Industries Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the dividend has gone from $0.40 total annually to $0.52. This implies that the company grew its distributions at a yearly rate of about 2.7% over that duration. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

Dividend Growth Potential Is Shaky

Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Astec Industries' EPS has fallen by approximately 28% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. 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 becomes a long term trend.

Astec Industries' Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think Astec Industries is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Astec Industries that investors need to be conscious of moving forward. Is Astec Industries 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.