BorgWarner (NYSE:BWA) Has Affirmed Its Dividend Of $0.11

BorgWarner Inc.'s (NYSE:BWA) investors are due to receive a payment of $0.11 per share on 16th of June. This means the annual payment will be 1.5% of the current stock price, which is lower than the industry average.

Our free stock report includes 3 warning signs investors should be aware of before investing in BorgWarner. Read for free now.

BorgWarner's Projected Earnings Seem Likely To Cover Future Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, prior to this announcement, BorgWarner's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to rise by 183.5% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 9.4% by next year, which is in a pretty sustainable range.

View our latest analysis for BorgWarner

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the dividend has gone from $0.52 total annually to $0.44. Doing the maths, this is a decline of about 1.7% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. BorgWarner's EPS has fallen by approximately 14% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about BorgWarner's payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think BorgWarner is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 3 warning signs for BorgWarner that investors should take into consideration. Is BorgWarner not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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