Ally Financial (NYSE:ALLY) Will Pay A Dividend Of $0.30

The board of Ally Financial Inc. (NYSE:ALLY) has announced that it will pay a dividend of $0.30 per share on the 15th of August. Based on this payment, the dividend yield on the company's stock will be 3.0%, which is an attractive boost to shareholder returns.

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

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.

Ally Financial has established itself as a dividend paying company, given its 9-year history of distributing earnings to shareholders. Based on Ally Financial's last earnings report, the payout ratio is at a decent 74%, meaning that the company is able to pay out its dividend with a bit of room to spare.

Analysts expect a massive rise in earnings per share in the next 3 years. In addtion, they also estimate the future payout ratio could reach 24% in the same time period, which we would be comfortable to see continuing.

View our latest analysis for Ally Financial

Ally Financial Doesn't Have A Long Payment History

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2016, the dividend has gone from $0.32 total annually to $1.20. This means that it has been growing its distributions at 16% per annum over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Has Limited Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though Ally Financial's EPS has declined at around 15% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Our Thoughts On Ally Financial's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Ally Financial is earning enough to cover the dividend, we are generally unimpressed with its future prospects. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Ally Financial that you should be aware of before investing. 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.