GATX (NYSE:GATX) Is Increasing Its Dividend To $0.61

The board of GATX Corporation (NYSE:GATX) has announced that the dividend on 31st of March will be increased to $0.61, which will be 5.2% higher than last year's payment of $0.58 which covered the same period. This takes the annual payment to 1.4% of the current stock price, which is about average for the industry.

View our latest analysis for GATX

GATX's Future Dividend Projections Appear Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, GATX was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS is forecast to expand by 32.5%. If the dividend continues on this path, the payout ratio could be 23% by next year, which we think can be pretty sustainable going forward.

GATX Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $1.32 in 2015 to the most recent total annual payment of $2.32. This implies that the company grew its distributions at a yearly rate of about 5.8% over that duration. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

We Could See GATX's Dividend Growing

Investors could be attracted to the stock based on the quality of its payment history. GATX has impressed us by growing EPS at 9.6% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for GATX you should be aware of, and 1 of them is potentially serious. Is GATX not quite the opportunity you were looking for? Why not check out our selection of top 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.