The board of Lear Corporation (NYSE:LEA) has announced that it will pay a dividend of $0.77 per share on the 23rd of September. This means the annual payment is 3.0% of the current stock price, which is above the average for the industry.
If the payments aren’t sustainable, a high yield for a few years won’t matter that much. Before making this announcement, Lear was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to rise by 103.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 19%, which is in the range that makes us comfortable with the sustainability of the dividend.
Check out our latest analysis for Lear
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the dividend has gone from $0.80 total annually to $3.08. This means that it has been growing its distributions at 14% per annum over that time. Lear has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
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. We are encouraged to see that Lear has grown earnings per share at 28% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
Overall, we like to see the dividend staying consistent, and we think Lear might even raise payments in the future. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we’ve identified 3 warning signs for Lear that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.