Allegheny Technologies 6% Yield: Is It Sustainable?

Summary
Allegheny Technologies' stock price has dropped more than 65% in six months.
ATI's dividend yield, as a result, is nearing 6%.
Does ATI have the operational performance to maintain its dividend?
Allegheny Technologies (NYSE: ATI) is having a difficult time navigating the volatile waters of the commodities and mining bear markets. In addition to this, the company is dealing with a lockout of more than 2,000 employees that dates back to August. Since being at $37 per share in the spring, the company's stock has dropped more than two-thirds, creating growth in the dividend yield to nearly 6%.

When examining the company's dividend sustainability statistics, I noted quite a bit of volatility. ATI has had quarters of negative earnings, which causes the quarterly metrics to jump. In this case, reviewing the numbers on a trailing twelve month basis is ideal. ATI has paid out 72 cents per share in dividends over the past four quarters, compared to 12 cents per share in earnings. With a payout ratio of 600%, the company clearly fails the payout ratio threshold.
In terms of free cash flow, ATI pays out an estimated $78 million in dividends every twelve months. In the previous three years, ATI has had adequate free cash flow to pay out dividends twice. Despite the combination of inadequate dividend coverage and two years of negative free cash flow, a silver lining exists. In Q3 2015, ATI's free cash flow turned positive on a trailing twelve... Read more

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