Regal Rexnord's (NYSE:RRX) Dividend Will Be $0.35

Regal Rexnord Corporation's (NYSE:RRX) investors are due to receive a payment of $0.35 per share on 14th of January. This payment means the dividend yield will be 0.8%, which is below the average for the industry.

Check out our latest analysis for Regal Rexnord

Regal Rexnord's Projections Indicate Future Payments May Be Unsustainable

Estimates Indicate Regal Rexnord's Could Struggle to Maintain Dividend Payments In The Future

Regal Rexnord's Future Dividends May Potentially Be At Risk

If it is predictable over a long period, even low dividend yields can be attractive. While Regal Rexnord is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

EPS is forecast to rise very quickly over the next 12 months. Assuming the dividend continues along recent trends, we could see the payout ratio reach 2,203%, which is on the unsustainable side.

Regal Rexnord Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was $0.80, compared to the most recent full-year payment of $1.40. This works out to be a compound annual growth rate (CAGR) of approximately 5.8% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend Has Limited Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Regal Rexnord's EPS has fallen by approximately 22% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. 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

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Regal Rexnord that investors should take into consideration. 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.