Lear Corporation (NYSE:LEA) has announced that it will pay a dividend of $0.77 per share on the 26th of December. Based on this payment, the dividend yield will be 2.3%, which is fairly typical for the industry.
View our latest analysis for Lear
Lear’s Earnings Easily Cover The Distributions
We aren’t too impressed by dividend yields unless they can be sustained over time. However, Lear’s earnings easily cover the dividend. 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 165.4% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 14% 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. The dividend has gone from an annual total of $0.68 in 2013 to the most recent total annual payment of $3.08. This means that it has been growing its distributions at 16% per annum over that time. Lear has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
Dividend Growth Potential Is Shaky
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though Lear’s EPS has declined at around 13% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in 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.
Our Thoughts On Lear’s Dividend
Overall, we don’t think this company makes a great dividend stock, even though the dividend wasn’t cut this year. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don’t think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we’ve identified 1 warning sign for Lear that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.