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BorgWarner Inc. (NYSE:BWA) stock is about to trade ex-dividend in 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase BorgWarner's shares on or after the 31st of August will not receive the dividend, which will be paid on the 15th of September.
The company's next dividend payment will be US$0.17 per share. Last year, in total, the company distributed US$0.68 to shareholders. Based on the last year's worth of payments, BorgWarner stock has a trailing yield of around 1.8% on the current share price of $37.97. 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 BorgWarner has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for BorgWarner
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see BorgWarner paying out a modest 25% of its earnings. A useful secondary check can be to evaluate whether BorgWarner generated enough free cash flow to afford its dividend. It distributed 45% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that BorgWarner's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that BorgWarner's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.