Should You Buy OneMain Holdings, Inc. (NYSE:OMF) For Its Upcoming Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see OneMain Holdings, Inc. (NYSE:OMF) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, OneMain Holdings investors that purchase the stock on or after the 9th of May will not receive the dividend, which will be paid on the 17th of May.

The company's next dividend payment will be US$1.04 per share, and in the last 12 months, the company paid a total of US$4.16 per share. Based on the last year's worth of payments, OneMain Holdings has a trailing yield of 8.1% on the current stock price of US$51.20. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether OneMain Holdings can afford its dividend, and if the dividend could grow.

View our latest analysis for OneMain Holdings

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Its dividend payout ratio is 78% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at OneMain Holdings, with earnings per share up 9.3% on average over the last five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last five years, OneMain Holdings has lifted its dividend by approximately 33% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Has OneMain Holdings got what it takes to maintain its dividend payments? OneMain Holdings has been generating some growth in earnings per share while paying out more than half of its earnings to shareholders in the form of dividends. We think there are likely better opportunities out there.

If you want to look further into OneMain Holdings, it's worth knowing the risks this business faces. To help with this, we've discovered 2 warning signs for OneMain Holdings (1 makes us a bit uncomfortable!) that you ought to be aware of before buying the shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.