BorgWarner Inc. (NYSE:BWA) will pay a dividend of $0.17 on the 15th of September. This payment means that the dividend yield will be 1.8%, which is around the industry average.
View our latest analysis for BorgWarner
BorgWarner’s Earnings Easily Cover The Distributions
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. However, prior to this announcement, BorgWarner’s dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.
Looking forward, earnings per share is forecast to rise by 108.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 12%, which is in the range that makes us comfortable with the sustainability of the dividend.
BorgWarner Doesn’t Have A Long Payment History
It is great to see that BorgWarner has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The annual payment during the last 9 years was $0.50 in 2013, and the most recent fiscal year payment was $0.68. This works out to be a compound annual growth rate (CAGR) of approximately 3.5% a year over that time. It’s good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn’t want to depend on this dividend too heavily.
The Dividend Looks Likely To Grow
The company’s investors will be pleased to have been receiving dividend income for some time. BorgWarner has seen EPS rising for the last five years, at 33% per annum. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.
BorgWarner Looks Like A Great Dividend Stock
Overall, we like to see the dividend staying consistent, and we think BorgWarner might even raise payments in the future. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 3 warning signs for BorgWarner that investors need to be conscious of moving forward. Is BorgWarner 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.
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