Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Autoliv, Inc. (NYSE:ALV) is about to go ex-dividend in just 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 as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company’s books on the record date. Thus, you can purchase Autoliv’s shares before the 8th of September in order to receive the dividend, which the company will pay on the 24th of September.
The company’s next dividend payment will be US$0.62 per share. Last year, in total, the company distributed US$2.48 to shareholders. Looking at the last 12 months of distributions, Autoliv has a trailing yield of approximately 2.8% on its current stock price of $87.72. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. 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 out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Autoliv has a low and conservative payout ratio of just 9.9% of its income after tax. A useful secondary check can be to evaluate whether Autoliv generated enough free cash flow to afford its dividend. The good news is it paid out just 7.8% of its free cash flow in the last year.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we’re encouraged by the steady growth at Autoliv, with earnings per share up 3.9% on average over the last five years. Autoliv is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Autoliv has delivered 4.5% dividend growth per year on average over the past 10 years. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is Autoliv worth buying for its dividend? Earnings per share have been growing moderately, and Autoliv is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Autoliv is being conservative with its dividend payouts and could still perform reasonably over the long run. There’s a lot to like about Autoliv, and we would prioritise taking a closer look at it.
On that note, you’ll want to research what risks Autoliv is facing. Case in point: We’ve spotted 3 warning signs for Autoliv you should be aware of.
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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.
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