Dana Incorporated (NYSE:DAN) has announced that it will pay a dividend of $0.10 per share on the 2nd of December. This payment means that the dividend yield will be 2.6%, which is around the industry average.
Check out our latest analysis for Dana
Dana’s Dividend Is Well Covered By Earnings
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. The company is paying out a large amount of its cash flows, even though it isn’t generating any profit. This makes us feel that the dividend will be hard to maintain.
Looking forward, earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 32%, so there isn’t too much pressure on the dividend.
Dividend Volatility
The company’s dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was $0.20 in 2012, and the most recent fiscal year payment was $0.40. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. A reasonable rate of dividend growth is good to see, but we’re wary that the dividend history is not as solid as we’d like, having been cut at least once.
The Dividend Has Limited Growth Potential
With a relatively unstable dividend, it’s even more important to see if earnings per share is growing. Dana’s EPS has fallen by approximately 31% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
Dana’s Dividend Doesn’t Look Great
Overall, while some might be pleased that the dividend wasn’t cut, we think this may help Dana make more consistent payments in the future. The company seems to be stretching itself a bit to make such big payments, but it doesn’t appear they can be consistent over time. We don’t think that this is a great candidate to be an income stock.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we’ve identified 2 warning signs for Dana that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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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