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Johnson Controls International plc's (NYSE:JCI) dividend will be increasing from last year's payment of the same period to $0.37 on 14th of July. This will take the annual payment to 2.3% of the stock price, which is above what most companies in the industry pay.
See our latest analysis for Johnson Controls International
Johnson Controls International's Payment Has Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite comfortably covered by Johnson Controls International's earnings, but it was a bit tighter on the cash flow front. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.
Over the next year, EPS is forecast to expand by 139.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 31%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the dividend has gone from $0.72 total annually to $1.44. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
Dividend Growth May Be Hard To Achieve
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings have grown at around 4.1% a year for the past five years, which isn't massive but still better than seeing them shrink. Growth of 4.1% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.
Our Thoughts On Johnson Controls International's Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. Overall, we don't think this company has the makings of a good income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 4 warning signs for Johnson Controls International (1 is significant!) that you should be aware of before investing. Is Johnson Controls International not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.