The board of Autoliv, Inc. (NYSE:ALV) has announced that it will be increasing its dividend by 3.1% on the 9th of December to $0.66, up from last year’s comparable payment of $0.64. This will take the annual payment to 2.9% of the stock price, which is above what most companies in the industry pay.
Check out our latest analysis for Autoliv
Autoliv’s Payment Has Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Autoliv’s earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.
The next year is set to see EPS grow by 139.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 23% by next year, which is in a pretty sustainable range.
Dividend Volatility
The company’s dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2012, the annual payment back then was $1.80, compared to the most recent full-year payment of $2.56. This works out to be a compound annual growth rate (CAGR) of approximately 3.6% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company’s earnings are not consistent.
Dividend Growth May Be Hard To Come By
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Autoliv has seen earnings per share falling at 6.4% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.
The Dividend Could Prove To Be Unreliable
Overall, we always like to see the dividend being raised, but we don’t think Autoliv will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don’t think this company has the makings of a good 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. For instance, we’ve picked out 2 warning signs for Autoliv that investors should take into consideration. 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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