Ally Financial (NYSE:ALLY) Will 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 February. Based on this payment, the dividend yield on the company's stock will be 3.0%, which is an attractive boost to shareholder returns.

Check out our latest analysis for Ally Financial

Ally Financial's Earnings Will Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable.

Having paid out dividends for 9 years, Ally Financial has a good history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Ally Financial's payout ratio of 47% is a good sign for current shareholders as this means that earnings decently cover dividends.

Over the next 3 years, EPS is forecast to expand by 123.1%. The future payout ratio could be 23% over that time period, according to analyst estimates, which is a good look for the future of the dividend.

Ally Financial Is Still Building Its Track Record

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 dividend has gone from an annual total of $0.32 in 2016 to the most recent total annual payment of $1.20. This means that it has been growing its distributions at 16% per annum over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

Dividend Growth Is Doubtful

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Ally Financial has seen earnings per share falling at 8.9% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Our Thoughts On Ally Financial's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Ally Financial's payments, as there could be some issues with sustaining them into the future. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Ally Financial has been making. We don't think Ally Financial is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Without at least some growth in earnings per share over time, the dividend will eventually come under pressure either from competition or inflation. Businesses can change though, and we think it would make sense to see what analysts are forecasting for the company. 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.