In This Article:
Ally Financial Inc.'s (NYSE:ALLY) investors are due to receive a payment of $0.30 per share on 15th of May. Based on this payment, the dividend yield on the company's stock will be 3.8%, which is an attractive boost to shareholder returns.
Our free stock report includes 3 warning signs investors should be aware of before investing in Ally Financial. Read for free now.
Ally Financial's Dividend Forecasted To Be Well Covered By Earnings
If the payments aren't sustainable, a high yield for a few years won't matter that much.
Having paid out dividends for 9 years, Ally Financial has a good history of paying out a part of its earnings to shareholders. Despite this history however, Ally Financial's latest earnings report actually shows that the company didn't have enough earnings to cover its dividends, paying out more than it earned. This value is at an alarming sign that could mean that Ally Financial's dividend at its current rate may no longer be sustainable for longer.
According to analysts, EPS should be several times higher in the next 3 years. They also estimate the payout ratio reaching 25% in the same time period, which is fairly sustainable.
See our latest analysis for Ally Financial
Ally Financial Is Still Building Its Track Record
Ally Financial's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The dividend has gone from an annual total of $0.32 in 2016 to the most recent total annual payment of $1.20. This means that it has been growing its distributions at 16% per annum over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.
Dividend Growth Potential Is Shaky
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Ally Financial's earnings per share has shrunk at 25% a year over 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. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.
The Dividend Could Prove To Be Unreliable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments are bit high to be considered sustainable, and the track record isn't the best. We would probably look elsewhere for an income investment.