Allison Transmission Holdings (NYSE:ALSN): A Dividend Stock Built for Reliability and Growth

For investors looking for steady income, dividend investing is a proven way to build wealth. This method focuses on finding companies with lasting payout policies, sound finances, and steady earnings, qualities that help dividends continue through different market environments. One organized way to find these opportunities is to use screening tools that assess several basic factors at the same time. By using filters for good dividend ratings along with acceptable profitability and health scores, investors can find companies like Allison Transmission Holdings (NYSE:ALSN) that display the traits wanted for dividend-focused portfolios.

Dividend Reliability and Growth

Allison Transmission's dividend profile shows several positive aspects dividend investors usually look for. The company has built a history of steady and increasing payments, which is important for income-focused plans that rely on predictable cash flows.

• Sustainable Payout Ratio: Only 11.68% of earnings are used for dividend payments, showing significant capacity to keep up payouts even in economic declines
• Strong Dividend Growth: The dividend has increased at an average yearly rate of 10.94% over recent years, giving investors rising income
• Proven Track Record: The company has kept or raised its dividend for at least 10 straight years, showing management's dedication to shareholder returns

These dividend traits match the screening method's focus on lasting payout policies. A low payout ratio lessens the chance of dividend reductions in hard times, while a steady growth history gives confidence in future income.

Profitability Supporting Dividend Sustainability

The company's high profitability forms the base for its dividend reliability. With a ChartMill Profitability Rating of 9 out of 10, Allison Transmission shows operational quality that backs continued dividend payments.

• Return Metrics: Return on Equity of 43.47% and Return on Invested Capital of 16.74% are much better than industry competitors
• Strong Margins: Operating margin of 31.72% is in the highest group of the machinery industry, while a 23.81% profit margin gives plenty of earnings to cover dividends
• Consistent Performance: The company has maintained profitability and positive operating cash flow over the last five years

These profitability measures directly back the dividend screening strategy's need for acceptable profitability. Strong and steady earnings ability ensures the company can finance dividend payments without harming its operational requirements or financial soundness.

Financial Health Supporting Long-Term Payouts

Allison Transmission's financial health, rated 7 out of 10 by ChartMill, gives more confidence for dividend sustainability. The company's balance sheet strength helps it handle economic cycles without putting shareholder payments at risk.

• Strong Liquidity Position: Current ratio of 3.36 and quick ratio of 2.64 show good short-term financial flexibility
• Reasonable Debt Management: A debt-to-free-cash-flow ratio of 3.67 points to acceptable debt levels compared to cash creation
• Value Creation: Return on invested capital is well above the company's cost of capital, showing efficient use of resources

The screening method's health requirement acts as an important protection for dividend investors. Companies with good financial bases are in a better position to maintain dividends during difficult times without taking harmful financial steps.

Attractive Valuation Context

While the current dividend yield of 1.30% might seem low, the company's valuation multiples indicate possibility for price gains along with income creation.

• Good Earnings Multiple: A P/E ratio of 9.33 compares well to the industry average of 30.07 and the S&P 500's 27.00
• Discounted Cash Flow Valuation: Price-to-free-cash-flow ratio shows the stock is less expensive than 93% of industry competitors
• Reasonable Forward Multiple: Forward P/E of 8.44 indicates continued earnings growth at a good valuation

For dividend investors, fair valuation gives an extra safety buffer, lowering the risk of capital loss that could cancel out income returns over the investment period.

Growth Prospects Supporting Future Increases

The company's growth profile, rated 6 out of 10, shows potential for continued dividend growth. Future expectations indicate improving performance that could support more payout increases.

• Earnings Acceleration: EPS growth is expected to rise to 14.32% per year, up from the historical 11.10% rate
• Revenue Expansion: Revenue growth forecasts of 14.78% per year are faster than historical growth rates
• Positive Momentum: Both earnings and revenue growth rates are expected to get better compared to recent history

This growth path supports the dividend screening approach by showing the company's ability to keep raising payouts without stressing its financial means.

The detailed fundamental analysis of Allison Transmission shows a company with the traits dividend investors usually want: lasting payouts backed by strong profitability, good financial health, and positive growth prospects. For investors wanting to look for similar opportunities, the Best Dividend Stocks screen gives more candidates that meet these strict criteria. Investors can see the full fundamental analysis report for ALSN for more specific information about the company's financial position and dividend sustainability.

Disclaimer: This article is for informational purposes only and does not constitute investment advice, financial analysis, or recommendation to buy or sell any security. Investors should conduct their own research and consult with a qualified financial advisor before making investment decisions. Past performance does not guarantee future results, and dividend payments are subject to company discretion and market conditions.