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 3.1%, which will augment investor returns quite nicely.

See our latest analysis for Ally Financial

Ally Financial's Dividend Forecasted To Be Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.

Ally Financial has established itself as a dividend paying company, given its 8-year history of distributing earnings to shareholders. Based on Ally Financial's last earnings report, the payout ratio is at a decent 49%, meaning that the company is able to pay out its dividend with a bit of room to spare.

Over the next 3 years, EPS is forecast to expand by 141.7%. The future payout ratio could be 22% over that time period, according to analyst estimates, which is a good look for the future of the dividend. historic-dividend

Ally Financial Doesn't Have A Long Payment History

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2016, the dividend has gone from $0.32 total annually to $1.20. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. 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

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Ally Financial has seen earnings per share falling at 5.8% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Our Thoughts On Ally Financial's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Ally Financial's payments, as there could be some issues with sustaining them into the future. While Ally Financial is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We don't think Ally Financial is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Ally Financial that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.