Wednesday, July 17, 2024

Can Stellantis Maintain Its Stellar 8.4% Yield?

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On January 16, 2021, the merger between two automotive titans – Fiat Chrysler Automobiles and PSA Group – was completed to form Stellantis (NYSE: STLA).

Three days later, shares of Stellantis IPO’d on the New York Stock Exchange.

Since then, the company has increased its dividend every year, with its current dividend of just over $1.65 equating to a yield of 8.4%. (Interestingly, it pays just one annual dividend rather than making four quarterly payouts.)

The big question, though, is whether its dividend is sustainable or at risk of being slashed in the future.

Let’s crunch some numbers to see where it stands… and to provide an answer for Wealthy Retirement reader Yariv, who left us a Facebook comment last week asking us to review Stellantis’ dividend.

As always, let’s take a look at the company’s free cash flow.

A big reason that Stellantis has been able to raise its dividend every year is its free cash flow growth.

Free cash flow in 2021 was just under $10 billion. In 2022, it rose to over $11.3 billion, and in 2023, it topped $12.2 billion.

That comes out to a phenomenal compound growth rate of 51.9%!

However, analysts are skeptical that Stellantis can continue growing its free cash flow at such a torrid pace.

Forward-looking estimates indicate a decrease of nearly 20% in the next year.

Chart: Trouble for Stellantis' Dividend?

Fortunately, that seems to be the only threat to the company’s dividend.

Despite raising its dividend in each of the past three years, the company still has a healthy payout ratio. In 2023, Stellantis paid out $4.2 billion of its $12.3 billion in free cash flow for a payout ratio of 34.2%, which is well below our threshold of 75%.

The payout ratio should climb this year due to the projected decline in free cash flow – but only to 44.5%.

With the forward-looking free cash flow estimates as my only concern, I am happy to give this stock’s dividend safety a solid “B.”

Dividend Safety Rating: B

Dividend Grade Guide

What stock’s dividend safety would you like us to analyze next? Leave the ticker in the comments section.

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Also, keep in mind that Safety Net can analyze only individual stocks, not exchange-traded funds, mutual funds or closed-end funds.

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