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GATX Corporation (NYSE:GATX) will increase its dividend on the 31st of March to $0.61, which is 5.2% higher than last year's payment from the same period of $0.58. The payment will take the dividend yield to 1.4%, which is in line with the average for the industry.
See our latest analysis for GATX
GATX's Future Dividend Projections Appear Well Covered By Earnings
We aren't too impressed by dividend yields unless they can be sustained over time. GATX is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
Looking forward, earnings per share is forecast to rise by 32.5% over the next year. 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.
GATX Has A Solid Track Record
The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $1.32 in 2015 to the most recent total annual payment of $2.32. This works out to be a compound annual growth rate (CAGR) of approximately 5.8% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.
We Could See GATX's Dividend Growing
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. GATX has seen EPS rising for the last five years, at 9.6% per annum. GATX definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Our Thoughts On GATX's Dividend
Overall, we always like to see the dividend being raised, but we don't think GATX will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for GATX you should be aware of, and 1 of them doesn't sit too well with us. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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.