BorgWarner's (NYSE:BWA) Dividend Will Be US$0.17

August 14, 2021
  •  Updated
October 05, 2022
NYSE:BWA
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BorgWarner Inc. (NYSE:BWA) has announced that it will pay a dividend of US$0.17 per share on the 15th of September. This payment means that the dividend yield will be 1.5%, which is around the industry average.

See our latest analysis for BorgWarner

BorgWarner's Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. However, BorgWarner's earnings easily 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 17.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 18%, which is in the range that makes us comfortable with the sustainability of the dividend.

historic-dividend
NYSE:BWA Historic Dividend August 15th 2021

BorgWarner Doesn't Have A Long Payment History

It is great to see that BorgWarner has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2013, the dividend has gone from US$0.50 to US$0.68. This means that it has been growing its distributions at 3.9% per annum over that time. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.

BorgWarner May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Earnings per share has been crawling upwards at 4.2% per year. While growth may be thin on the ground, BorgWarner could always pay out a higher proportion of earnings to increase shareholder returns.

We'd also point out that BorgWarner has issued stock equal to 16% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Our Thoughts On BorgWarner's Dividend

Overall, we think BorgWarner is a solid choice as a dividend stock, even though the dividend wasn't raised this year. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

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. For example, we've picked out 4 warning signs for BorgWarner that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid dividend.

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