Just four days before BorgWarner Inc. (NYSE: BWA) trades off dividend

Some investors rely on dividends to increase their wealth, and if you are one of those dividend detectors, you might be intrigued to know that BorgWarner Inc. (NYSE: BWA) is set to go ex-dividend in just four days. The ex-dividend date is one business day before the registration date, which is the deadline for shareholders to be on the books of the company to be eligible for a dividend payment. The ex-dividend date is important because any share transaction must have been settled before the registration date to be eligible for a dividend. As a result, BorgWarner investors who buy the shares on or after May 28 will not receive the dividend, which will be paid on June 15.

The company’s next dividend will be $ 0.17 per share, and over the past 12 months, the company has paid a total of $ 0.68 per share. Looking at the last 12 months of distributions, BorgWarner has a trailing yield of around 1.3% on its current price of $ 50.51. Dividends make a large contribution to investment returns for long-term holders, but only if the dividend continues to be paid. So we have to ask ourselves if BorgWarner can afford its dividend and if the dividend could increase.

See our latest review for BorgWarner

Dividends are generally paid out of company profits. If a company pays more in dividends than it earned in profits, then the dividend could be unsustainable. That’s why it’s good to see BorgWarner donate a modest 34% of its earnings. Yet cash flow is still more important than earnings in valuing a dividend, so we need to see if the company has generated enough cash to pay for its distribution. The good thing is that dividends were well covered by free cash flow, with the company paying out 21% of its cash flow last year.

It is positive to see that BorgWarner’s dividend is covered by both earnings and cash flow, as this is usually a sign that the dividend is sustainable, and a lower payout ratio usually suggests a larger margin. security before the dividend is reduced.

Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.

NYSE: Historic BWA Dividend May 23, 2021

Have profits and dividends increased?

When profits decline, dividend companies become much more difficult to analyze and to safely own. If business slows down and the dividend is reduced, the company could see its value drop precipitously. Readers will then understand why we are concerned that BorgWarner’s earnings per share have fallen 6.2% per year over the past five years. Ultimately, when earnings per share declines, the size of the pie from which dividends can be paid declines.

Another key way to measure a company’s dividend outlook is to measure its historical rate of dividend growth. Over the past eight years, BorgWarner has increased its dividend by an average of 3.9% per year.

Final takeaway

Is BorgWarner an attractive dividend-paying stock, or is it better to stay on the shelf? BorgWarner has comfortably low cash and earnings payout ratios, which can mean the dividend is sustainable even in the face of a sharp drop in earnings per share. Nonetheless, we see the drop in income as a warning sign. In summary, while this has some positive characteristics, we are not inclined to race and buy BorgWarner today.

In light of this, while BorgWarner has an attractive dividend, it is worth knowing the risks associated with this stock. Concrete example: we have spotted 6 warning signs for BorgWarner you have to be aware of it.

A common investment mistake is to buy the first interesting stock you see. Here you will find a list of promising dividend paying stocks with a yield above 2% and an upcoming dividend.

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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in any of the stocks mentioned.
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