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 15th of November. Based on this payment, the dividend yield on the company's stock will be 3.4%, which is an attractive boost to shareholder returns.

See 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.

Ally Financial has a good history of paying out dividends, with its current track record at 8 years. Taking data from its last earnings report, calculating for the company's payout ratio of 51%shows that Ally Financial would be able to pay its last dividend without pressure on the balance sheet.

The next 3 years are set to see EPS grow by 163.9%. Analysts forecast the future payout ratio could be 22% over the same time horizon, which is a number we think the company can maintain.

Ally Financial Is Still Building Its Track Record

It is great to see that Ally Financial has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The annual payment during the last 8 years was $0.32 in 2016, and the most recent fiscal year payment was $1.20. This means that it has been growing its distributions at 18% per annum 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.

Dividend Growth May Be Hard To Come By

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. It's not great to see that Ally Financial's earnings per share has fallen at approximately 10.0% per year over the past 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 predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Ally Financial has been making. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign 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.