Yahoo Finance BorgWarner Inc. (NYSE:BWA) Will Pay A US$0.17 Dividend In Four Days
Readers hoping to buy BorgWarner Inc. (NYSE:BWA) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 26th of February in order to receive the dividend, which the company will pay on the 15th of March.
BorgWarner's upcoming dividend is US$0.17 a share, following on from the last 12 months, when the company distributed a total of US$0.68 per share to shareholders. Looking at the last 12 months of distributions, BorgWarner has a trailing yield of approximately 1.6% on its current stock price of $43.56. If you buy this business for its dividend, you should have an idea of whether BorgWarner's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for BorgWarner
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately BorgWarner's payout ratio is modest, at just 29% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The good news is it paid out just 20% of its free cash flow in the last year.
It's positive to see that BorgWarner's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's not ideal to see BorgWarner's earnings per share have been shrinking at 3.0% a year over the previous five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. BorgWarner has delivered an average of 3.9% per year annual increase in its dividend, based on the past eight years of dividend payments.
The Bottom Line
Has BorgWarner got what it takes to maintain its dividend payments? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. In summary, while it has some positive characteristics, we're not inclined to race out and buy BorgWarner today.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Case in point: We've spotted 6 warning signs for BorgWarner you should be aware of.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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.
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