Dana Incorporated (NYSE:DAN) will pay a dividend of $0.10 on the 24th of March. This means that the annual payment will be 2.1% of the current stock price, which is in line with the average for the industry.
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. Dana is unprofitable despite paying a dividend, and it is paying out 1,147% of its free cash flow. This is quite a strong warning sign that the dividend may not be sustainable.
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 51%, 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. Since 2013, the dividend has gone from $0.20 total annually to $0.40. This means that it has been growing its distributions at 7.2% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.
The Dividend Has Limited Growth Potential
With a relatively unstable dividend, it’s even more important to see if earnings per share is growing. Over the past five years, it looks as though Dana’s EPS has declined at around 31% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn’t be feeling too comfortable.
Dana’s Dividend Doesn’t Look Great
In summary, while it is good to see that the dividend hasn’t been cut, we think that at current levels the payment isn’t particularly sustainable. The company isn’t making enough to be paying as much as it is, and the other factors don’t look particularly promising either. We don’t think that this is a great candidate to be an income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we’ve come across 3 warning signs for Dana you should be aware of, and 2 of them are a bit unpleasant. Is Dana 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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