It looks like Autoliv, Inc. (NYSE:ALV) is about to go ex-dividend in the next 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Autoliv’s shares before the 3rd of December in order to receive the dividend, which the company will pay on the 19th of December.
The company’s upcoming dividend is US$0.70 a share, following on from the last 12 months, when the company distributed a total of US$2.72 per share to shareholders. Last year’s total dividend payments show that Autoliv has a trailing yield of 2.8% on the current share price of US$98.60. If you buy this business for its dividend, you should have an idea of whether Autoliv’s dividend is reliable and sustainable. As a result, readers should always check whether Autoliv has been able to grow its dividends, or if the dividend might be cut.
See our latest analysis for Autoliv
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That’s why it’s good to see Autoliv paying out a modest 35% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Thankfully its dividend payments took up just 45% of the free cash flow it generated, which is a comfortable payout ratio.
It’s positive to see that Autoliv’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Autoliv’s earnings per share have been growing at 13% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Autoliv has delivered 3.0% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because Autoliv is keeping back more of its profits to grow the business.
Has Autoliv got what it takes to maintain its dividend payments? Autoliv has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it’s cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. It’s a promising combination that should mark this company worthy of closer attention.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Case in point: We’ve spotted 2 warning signs for Autoliv you should be aware of.
If you’re in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.