The board of Johnson Controls International plc (NYSE:JCI) has announced that the dividend on 17th of October will be increased to $0.40, which will be 8.1% higher than last year’s payment of $0.37 which covered the same period. The payment will take the dividend yield to 1.4%, which is in line with the average for the industry.
Johnson Controls International’s Payment Could Potentially Have Solid Earnings Coverage
We aren’t too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Johnson Controls International’s dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
Looking forward, earnings per share is forecast to rise by 84.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 28%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the dividend has gone from $1.04 total annually to $1.48. This implies that the company grew its distributions at a yearly rate of about 3.6% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Johnson Controls International has seen EPS rising for the last five years, at 24% per annum. The company doesn’t have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.
We Really Like Johnson Controls International’s Dividend
Overall, a dividend increase is always good, and we think that Johnson Controls International is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we’ve identified 2 warning signs for Johnson Controls International that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.