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Ball Corporation (NYSE:BALL) will pay a dividend of $0.20 on the 15th of September. This means the annual payment will be 1.4% of the current stock price, which is lower than the industry average.
View our latest analysis for Ball
Ball's Payment Has Solid Earnings Coverage
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Ball's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.
Over the next year, EPS is forecast to expand by 162.4%. If the dividend continues on this path, the payout ratio could be 24% by next year, which we think can be pretty sustainable going forward.
Ball Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2013, the annual payment back then was $0.26, compared to the most recent full-year payment of $0.80. This means that it has been growing its distributions at 12% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
Ball May Find It Hard To Grow The Dividend
The company's investors will be pleased to have been receiving dividend income for some time. Earnings has been rising at 3.1% per annum over the last five years, which admittedly is a bit slow. Growth of 3.1% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.
In Summary
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Ball is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for Ball you should be aware of, and 1 of them is a bit unpleasant. Is Ball not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.