Autoliv, Inc. (NYSE:ALV) will increase its dividend from last year’s comparable payment on the 23rd of September to $0.85. This takes the dividend yield to 3.0%, which shareholders will be pleased with.
If the payments aren’t sustainable, a high yield for a few years won’t matter that much. However, prior to this announcement, Autoliv’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.
Over the next year, EPS is forecast to expand by 36.6%. If the dividend continues on this path, the payout ratio could be 25% by next year, which we think can be pretty sustainable going forward.
View our latest analysis for Autoliv
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of $2.16 in 2015 to the most recent total annual payment of $3.40. This works out to be a compound annual growth rate (CAGR) of approximately 4.6% a year over that time. We’re glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
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. Autoliv has seen EPS rising for the last five years, at 13% per annum. Autoliv definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we’ve picked out 2 warning signs for Autoliv that investors should take into consideration. Is Autoliv not quite the opportunity you were looking for? Why not check out our selection of top 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.