Ally Financial Inc. (NYSE:ALLY) has announced that it will pay a dividend of $0.30 per share on the 15th of February. This means the annual payment is 3.7% of the current stock price, which is above the average for the industry.
Ally Financial's Payment Expected To Have Solid Earnings Coverage
If the payments aren't sustainable, a high yield for a few years won't matter that much.
Ally Financial has a good history of paying out dividends, with its current track record at 6 years. While past data isn't a guarantee for the future, Ally Financial's latest earnings report puts its payout ratio at 24%, showing that the company can pay out its dividends comfortably.
Over the next 3 years, EPS is forecast to expand by 24.3%. The future payout ratio could be 19% over that time period, according to analyst estimates, which is a good look for the future of the dividend.
Ally Financial Doesn't Have A Long Payment History
It is great to see that Ally Financial has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The annual payment during the last 6 years was $0.32 in 2017, and the most recent fiscal year payment was $1.20. This works out to be a compound annual growth rate (CAGR) of approximately 25% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Ally Financial has been growing its earnings per share at 21% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.
We Really Like Ally Financial's Dividend
Overall, we like to see the dividend staying consistent, and we think Ally Financial might even raise payments in the future. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for Ally Financial (1 is potentially serious!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
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