Allison Transmission Holdings (NYSE:ALSN): A Dividend Stock for Dependable Income

Investors looking for dependable income often consider dividend stocks, but finding companies that provide good yields and financial soundness needs detailed study. One technique uses organized filters to select stocks that show good dividend traits while keeping acceptable core business condition. This method usually searches for companies with favorable dividend grades, which assess items such as yield, increase, and durability, together with satisfactory profitability and financial condition marks to confirm the dividend distributions are supported by a workable business. Allison Transmission Holdings (NYSE:ALSN) appears as a possibility from this kind of filtering process, deserving more examination for portfolios centered on dividends.

Dividend Dependability and Increase

Allison Transmission’s dividend characteristics are notable for their mix of yield, increase, and durability, important parts for lasting dividend investment. The company’s dividend yield of 1.25% might seem low next to the S&P 500 average, but it is supported by a history of steady raises and a low distribution ratio, lowering the chance of reductions. Importantly, the dividend has increased at an average yearly speed of 10.94% over the last ten years, showing management’s dedication to giving value to shareholders. This increase is not only past; it is supported by a distribution ratio of only 11.68% of earnings, showing significant space to continue or lift dividends even if earnings vary. For dividend investors, these items are critical because they emphasize a company that focuses on maintainable income over large, possibly uncertain yields.

Profitability Supporting Dividend Distributions

A company’s capacity to maintain dividends relies on its profitability, and Allison Transmission performs well here with a ChartMill Profitability Rating of 9. The company’s margins are especially strong, with an operating margin of 31.72% and a profit margin of 23.81%, both placed with the top in the machinery field. Key profit measures further support this condition:

• Return on Equity (ROE) of 43.47%, doing better than 96.90% of industry similar companies
• Return on Invested Capital (ROIC) of 16.74%, above the industry average
• Steady positive earnings and cash flow over the previous five years

These numbers are important for dividend investors because high profitability confirms that the company produces enough earnings to fund dividend payments without stressing its funds. The solid ROIC and ROE indicate effective use of capital, which can help future dividend increases and business development.

Financial Condition as a Protective Layer

Dividend durability also relies on a company’s financial condition, and Allison Transmission has a ChartMill Health Rating of 7, showing a steady base. The company shows good cash availability, with a current ratio of 3.36 and a quick ratio of 2.64, much higher than industry averages, meaning it can simply meet immediate responsibilities. While the debt-to-equity ratio is somewhat elevated at 1.37, this is lessened by an acceptable debt-to-free-cash-flow ratio of 3.67, indicating the company can reduce debt fairly fast. For dividend investors, this financial condition lowers the chance of dividend reductions during economic slumps, as the company has the cash availability to handle difficulties without reducing shareholder payments.

Valuation and Development Outlook

Allison Transmission sells at good valuation points, with a price-to-earnings (P/E) ratio of 9.83 and a forward P/E of 8.57, both under industry and S&P 500 averages. This low valuation is paired with positive development forecasts; analysts estimate yearly EPS development of 14.32% and income development of 14.78% in the next years. Such development outlooks are necessary for dividend investors because they indicate the company can keep raising earnings, therefore helping future dividend lifts without weakening financial steadiness.

Conclusion

Allison Transmission offers a strong argument for dividend investors, mixing a dependable and increasing dividend with outstanding profitability and acceptable financial condition. The company’s low distribution ratio, good cash flow, and field-leading margins supply a solid base for continued income payments, while its fair valuation and development path give possibility for price gains. Investors using dividend-centered methods might find Allison Transmission matches well with standards that stress security, development, and durability.

For more investigation of dividend stocks that meet similar standards, you can check the Best Dividend Stocks screen.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should conduct their own research and consider their financial situation before making any investment decisions.