Ally Financial (NYSE:ALLY) Is Due To Pay A Dividend Of $0.30

Ally Financial Inc.'s (NYSE:ALLY) investors are due to receive a payment of $0.30 per share on 14th of November. This means the annual payment is 3.2% of the current stock price, which is above the average for the industry.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Ally Financial's Earnings Will Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much.

Having paid out dividends for 9 years, Ally Financial has a good history of paying out a part of its earnings to shareholders. Despite this history however, Ally Financial's latest earnings report actually shows that the company didn't have enough earnings to cover its dividends, paying out more than it earned. This is worrying for investors of Ally Financial, as it points towards the dividends being unsustainable in the long term.

According to analysts, EPS should be several times higher in the next 3 years. They also estimate the payout ratio reaching 19% in the same time period, which is fairly sustainable.

Check out our latest analysis for Ally Financial

Ally Financial Doesn't Have A Long Payment History

Ally Financial's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The annual payment during the last 9 years was $0.32 in 2016, and the most recent fiscal year payment was $1.20. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. Ally Financial has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Has Limited Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. Over the past five years, it looks as though Ally Financial's EPS has declined at around 10% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. 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.

Ally Financial's Dividend Doesn't Look Sustainable

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 track record isn't great, and the payments are a bit high to be considered sustainable. We don't think Ally Financial is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 3 warning signs for Ally Financial 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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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.