BorgWarner Inc. (NYSE:BWA) has announced that it will pay a dividend of $0.11 per share on the 16th of September. Including this payment, the dividend yield on the stock will be 1.3%, which is a modest boost for shareholders’ returns.
View our latest analysis for BorgWarner
BorgWarner’s Payment Has Solid Earnings Coverage
If it is predictable over a long period, even low dividend yields can be attractive. However, BorgWarner’s earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.
Looking forward, earnings per share is forecast to rise by 64.6% over the next year. If the dividend continues on this path, the payout ratio could be 9.4% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
The company’s dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was $0.50, compared to the most recent full-year payment of $0.44. Doing the maths, this is a decline of about 1.3% per year. Generally, we don’t like to see a dividend that has been declining over time as this can degrade shareholders’ returns and indicate that the company may be running into problems.
Dividend Growth May Be Hard To Come By
With a relatively unstable dividend, it’s even more important to see if earnings per share is growing. It’s not great to see that BorgWarner’s earnings per share has fallen at approximately 6.6% per year over the past five years. A modest decline in earnings isn’t great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. 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.
In Summary
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.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 1 warning sign for BorgWarner that investors should take into consideration. 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.
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