BorgWarner (NYSE:BWA) Is Due To Pay A Dividend Of $0.11

The board of BorgWarner Inc. (NYSE:BWA) has announced that it will pay a dividend on the 16th of September, with investors receiving $0.11 per share. Including this payment, the dividend yield on the stock will be 1.4%, which is a modest boost for shareholders' returns.

View our latest analysis for BorgWarner

BorgWarner's Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, BorgWarner was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 45.9%. 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.

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. Since 2014, the annual payment back then was $0.50, compared to the most recent full-year payment of $0.44. The dividend has shrunk at around 1.3% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. BorgWarner hasn't seen much change in its earnings per share over the last five years.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

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. As an example, we've identified 1 warning sign for BorgWarner that you should be aware of before investing. 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.