The board of BorgWarner Inc. (NYSE:BWA) has announced that it will pay a dividend on the 16th of September, with investors receiving $0.11 per share. The dividend yield is 1.4% based on this payment, which is a little bit low compared to the other companies in the industry.
Check out our latest analysis for BorgWarner
BorgWarner’s Earnings Easily Cover The Distributions
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, prior to this announcement, BorgWarner’s dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
The next year is set to see EPS grow by 45.9%. 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 has a long dividend track record, but it doesn’t look great with cuts in the past. The dividend has gone from an annual total of $0.50 in 2014 to the most recent total annual payment of $0.44. Doing the maths, this is a decline of about 1.3% per year. Declining dividends isn’t generally what we look for as they can indicate that the company is running into some challenges.
The Dividend’s Growth Prospects Are Limited
With a relatively unstable dividend, it’s even more important to see if earnings per share is growing. Although it’s important to note that BorgWarner’s earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.
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.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. 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.