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The board of Ball Corporation (NYSE:BALL) has announced that it will pay a dividend of $0.20 per share on the 17th of March. This means the annual payment will be 1.6% of the current stock price, which is lower than the industry average.
See our latest analysis for Ball
Ball's Payment Could Potentially Have Solid Earnings Coverage
Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, Ball's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
The next year is set to see EPS grow by 181.6%. If the dividend continues on this path, the payout ratio could be 23% by next year, which we think can be pretty sustainable going forward.
Ball Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the annual payment back then was $0.26, compared to the most recent full-year payment of $0.80. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
The Dividend's Growth Prospects Are Limited
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. It's not great to see that Ball's earnings per share has fallen at approximately 3.6% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Ball's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing 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 concerning. 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.