Aptiv PLC (NYSE:APTV) is about to trade ex-dividend in the next 2 days. You will need to purchase shares before the 4th of February to receive the dividend, which will be paid on the 19th of February.
Aptiv’s next dividend payment will be US$0.22 per share. Last year, in total, the company distributed US$0.88 to shareholders. Calculating the last year’s worth of payments shows that Aptiv has a trailing yield of 1.0% on the current share price of $84.79. If you buy this business for its dividend, you should have an idea of whether Aptiv’s dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Aptiv has a low and conservative payout ratio of just 23% of its income after tax. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 27% of its free cash flow in the past year.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. So we’re not too excited that Aptiv’s earnings are down 2.2% a year over the past five years.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, seven years ago, Aptiv has lifted its dividend by approximately 3.8% a year on average.
Is Aptiv an attractive dividend stock, or better left on the shelf? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It’s definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. All things considered, we are not particularly enthused about Aptiv from a dividend perspective.
Ever wonder what the future holds for Aptiv? See what the 23 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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