Aptiv PLC (NYSE:APTV) stock is about to trade ex-dividend in 4 days time. Ex-dividend means that investors that purchase the stock on or after the 6th of August will not receive this dividend, which will be paid on the 21st of August.
Aptiv’s next dividend payment will be US$0.22 per share, on the back of last year when the company paid a total of US$0.88 to shareholders. Based on the last year’s worth of payments, Aptiv has a trailing yield of 1.0% on the current stock price of $87.65. If you buy this business for its dividend, you should have an idea of whether Aptiv’s dividend is reliable and sustainable. As a result, readers should always check whether Aptiv has been able to grow its dividends, or if the dividend might be cut.
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. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 32% of its free cash flow as dividends, a comfortable payout level for most companies.
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 that aren’t growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we’re not overly excited about Aptiv’s flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Earnings per share growth in recent times has not been a standout. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Aptiv has delivered 4.4% dividend growth per year on average over the past 6 years.
The Bottom Line
Is Aptiv worth buying for its dividend? The company has barely grown earnings per share over this time, but at least it’s paying out a decently low percentage of its earnings and cashflow as dividends. This could suggest management is reinvesting in future growth opportunities. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine strong earnings per share growth with a low payout ratio, and Aptiv is halfway there. Aptiv looks solid on this analysis overall, and we’d definitely consider investigating it more closely.
Wondering what the future holds for Aptiv? See what the 25 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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