Ally Financial's (NYSE:ALLY) Dividend Will Be $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 May. This makes the dividend yield 4.5%, which will augment investor returns quite nicely.

See our latest analysis for Ally Financial

Ally Financial's Earnings Will Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable.

Ally Financial has established itself as a dividend paying company, given its 7-year history of distributing earnings to shareholders. Using data from its latest earnings report, Ally Financial's payout ratio sits at 21%, an extremely comfortable number that shows that it can pay its dividend.

Looking forward, EPS is forecast to rise by 42.7% over the next 3 years. Analysts estimate the future payout ratio will be 23% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

Ally Financial Is Still Building Its Track Record

The dividend's track record has been pretty solid, but with only 7 years of history we want to see a few more years of history before making any solid conclusions. The dividend has gone from an annual total of $0.32 in 2016 to the most recent total annual payment of $1.20. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year 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.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Ally Financial has impressed us by growing EPS at 14% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

We Really Like Ally Financial's Dividend

Overall, we like to see the dividend staying consistent, and we think Ally Financial might even raise payments in the future. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

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 2 warning signs for Ally Financial that investors should know about before committing capital to this stock. Is Ally Financial not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.