The board of Dana Incorporated (NYSE:DAN) has announced that it will pay a dividend of $0.10 per share on the 29th of August. This means the dividend yield will be fairly typical at 2.5%.
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Dana is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.
Earnings per share is forecast to rise exponentially over the next year. Assuming the dividend continues along the path it has been on, the payout ratio could get to 77% which is certainly still sustainable.
See our latest analysis for Dana
The company’s dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was $0.20 in 2015, and the most recent fiscal year payment was $0.40. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we’re not certain this dividend stock would be ideal for someone intending to live on the income.
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Dana’s EPS has fallen by approximately 39% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. 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 becomes a long term trend.
Overall, it’s nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. 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. This company is not in the top tier of income providing stocks.
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. Case in point: We’ve spotted 2 warning signs for Dana (of which 1 is potentially serious!) you should know about. 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.