Ally Financial Co., Ltd. (NYSE:ALLY) investors will receive a payment of $0.30 per share on February 15th. Based on this payment, the company's stock has a dividend yield of 3.4%, an attractive boost to shareholder returns.
Dividend yields are important for income investors, but it's also important to take into account large stock price fluctuations, as dividend yields generally exceed the return on dividends. Investors will be pleased to see that Ally Financial's share price is up 48% in the last three months. This is good for shareholders, and also explains the lower dividend yield.
Check out our latest analysis for Ally Financial.
Ally Financial's payout is expected to cover solid earnings
Even if you can maintain a high dividend yield for several years, it doesn't mean much if you can't maintain it.
Ally Financial has established itself as a dividend-paying company with an eight-year history of distributing profits to shareholders. Based on Ally Financial's most recent earnings report, the payout ratio is a respectable 33%, meaning the company can pay its dividend with some leeway.
Looking ahead, EPS is expected to increase by 82.5% over the next three years. Analysts expect the future dividend payout ratio to be 26% over the same period, which they believe is within the company's range of dividend sustainability.
Ally Financial does not have a long payment history
This dividend track record is very strong, but since it's only been around for 8 years, we'd like to see a few more years of history before drawing any firm conclusions. Since 2016, he has been paid $1.20 per year recently, compared to $0.32 per year at the time. This means that it has been increasing its distributions at a rate of 18% per year over that time. It's always nice to see dividends grow strongly, but with such a short payment history, we don't tend to rely on it until a longer track record is built up.
Dividend increases may be difficult to achieve
Investors may be attracted to a stock based on the quality of its payment history. However, it's important to note that Ally Financial's earnings per share have essentially not grown over the last five years, which could erode the purchasing power of the dividend over time. Although profit growth is slow, the positive side is that the dividend payout ratio is low, and if the company decides to raise the dividend payout ratio, it may be expected that dividends will increase more than profits.
In summary
Overall, a consistent dividend is a good thing, and we think Ally Financial has the ability to continue this into the future. Although the dividend payout ratio seems good, unfortunately the company's dividend track record is not that great. The dividend seems to be okay, but there have been problems in the past, so I'd be a little cautious.
Investors generally prefer companies with consistent and stable dividend policies over companies with irregular dividend policies. On the other hand, despite the importance of dividends, they are not the only factor that our readers need to know when evaluating a company. For example, we identified 2 warning signs for Ally Financial What you need to know before investing. Is Ally Financial the opportunity you've been looking for? Why not check it out? Selection of high dividend stocks.
Have feedback on this article? Interested in its content? contact Please contact us directly. Alternatively, email our editorial team at Simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
