OneMain Holdings' (NYSE:OMF) Dividend Will Be $1.00

OneMain Holdings, Inc. (NYSE:OMF) will pay a dividend of $1.00 on the 23rd of February. Based on this payment, the dividend yield on the company's stock will be 8.6%, which is an attractive boost to shareholder returns.

View our latest analysis for OneMain Holdings

OneMain Holdings' Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, OneMain Holdings' dividend made up quite a large proportion of earnings but only 19% of free cash flows. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 81.4%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 57% which would be quite comfortable going to take the dividend forward.

OneMain Holdings' Dividend Has Lacked Consistency

OneMain Holdings has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The annual payment during the last 5 years was $1.00 in 2019, and the most recent fiscal year payment was $4.00. This works out to be a compound annual growth rate (CAGR) of approximately 32% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that OneMain Holdings has grown earnings per share at 10% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

In Summary

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 payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think OneMain Holdings is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, OneMain Holdings has 2 warning signs (and 1 which is potentially serious) we think you should know about. Is OneMain Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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