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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Ally Financial Inc. (NYSE:ALLY) is about to go ex-dividend in just four days. Investors can purchase shares before the 29th of January in order to be eligible for this dividend, which will be paid on the 12th of February.
Ally Financial's next dividend payment will be US$0.19 per share, and in the last 12 months, the company paid a total of US$0.76 per share. Calculating the last year's worth of payments shows that Ally Financial has a trailing yield of 1.9% on the current share price of $40.61. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Ally Financial has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Ally Financial
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Ally Financial's payout ratio is modest, at just 36% of profit. Ally Financial paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Ally Financial has grown its earnings rapidly, up 41% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Ally Financial has delivered 19% dividend growth per year on average over the past five years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Is Ally Financial an attractive dividend stock, or better left on the shelf? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. Ally Financial ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.