Allison Transmission Holdings (NYSE:ALSN) Will Pay A Larger Dividend Than Last Year At $0.27

Allison Transmission Holdings, Inc.'s (NYSE:ALSN) periodic dividend will be increasing on the 14th of March to $0.27, with investors receiving 8.0% more than last year's $0.25. This takes the annual payment to 1.0% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for Allison Transmission Holdings

Allison Transmission Holdings' Projected Earnings Seem Likely To Cover Future Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, prior to this announcement, Allison Transmission Holdings' 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.

Over the next year, EPS is forecast to expand by 24.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 10% by next year, which is in a pretty sustainable range.

Allison Transmission Holdings Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $0.48 in 2015, and the most recent fiscal year payment was $1.00. This means that it has been growing its distributions at 7.6% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Allison Transmission Holdings has grown earnings per share at 12% per year over the past five years. Allison Transmission Holdings definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Allison Transmission Holdings Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Allison Transmission Holdings that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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