Autoliv's (NYSE:ALV) Dividend Will Be Increased To $0.85

Autoliv, Inc.'s (NYSE:ALV) dividend will be increasing from last year's payment of the same period to $0.85 on 23rd of September. This will take the dividend yield to an attractive 2.9%, providing a nice boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Autoliv's stock price has increased by 33% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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Autoliv's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, Autoliv's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 39.6% over the next year. If the dividend continues on this path, the payout ratio could be 24% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Autoliv

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of $2.16 in 2015 to the most recent total annual payment of $3.40. This works out to be a compound annual growth rate (CAGR) of approximately 4.6% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Autoliv has seen EPS rising for the last five years, at 13% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Autoliv Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Autoliv that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.