Lear Corporation (NYSE:LEA) has announced that it will pay a dividend of $0.77 per share on the 23rd of September. This makes the dividend yield 2.7%, which will augment investor returns quite nicely.
Check out our latest analysis for Lear
Lear’s Dividend Is Well Covered By Earnings
A big dividend yield for a few years doesn’t mean much if it can’t be sustained. 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.
Over the next year, EPS is forecast to expand by 102.8%. If the dividend continues on this path, the payout ratio could be 18% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of $0.68 in 2014 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. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
Dividend Growth May Be Hard To Come By
With a relatively unstable dividend, it’s even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. In the last five years, Lear’s earnings per share has shrunk at approximately 7.1% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. It’s not all bad news though, as the earnings are predicted to rise over the next 12 months – we would just be a bit cautious until this can turn into a longer term trend.
Our Thoughts On Lear’s Dividend
Overall, it’s nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments haven’t been particularly stable and we don’t see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we’ve identified 2 warning signs for Lear that investors need to be conscious of moving forward. 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.