Allison Transmission (NYSE:ALSN): A High-Quality Dividend Stock with Strong Profitability

For investors looking for a dependable source of passive income, a methodical screening process is needed to distinguish truly lasting dividend payers from risky high-yield choices. One useful technique focuses on stocks that have a high dividend rating and are also supported by good profitability and sound finances. This layered method emphasizes the security and possible expansion of the dividend payment over just seeking the largest stated yield. A stock that performs favorably in these three areas, dividend quality, profitability, and health, indicates a company with the business power and financial durability to continue and possibly raise its distributions to shareholders over time.

ALLISON TRANSMISSION HOLDING (NYSE:ALSN) appears as a notable candidate from this type of screening. As a top designer and maker of fully automatic transmissions for commercial and defense vehicles, Allison works with a worldwide presence and a long-standing market position. The company’s basic profile, especially its solid dividend traits paired with good operational measures, makes it worth further examination for income-oriented portfolios.

Examining the Dividend Profile

The main attraction for dividend investors is Allison Transmission’s well-backed and increasing payout. The company receives a ChartMill Dividend Rating of 7, showing a measured evaluation of yield, growth, history, and longevity.

• Yield and Growth: With a present annual dividend yield of 1.21%, ALSN provides a fair, though not spectacular, income return. The more notable narrative is its growth path. The company has raised its dividend at an average yearly pace of 10.94% over the last five years, showing a clear dedication to giving more capital back to shareholders.
• History and Longevity: Dependability is critical, and Allison Transmission builds trust with a history of paying dividends for at least ten years without a cut. Importantly, this growth seems durable. The payout ratio is at a very low 12.88%, meaning the company uses only a minor part of its earnings to pay the dividend. This leaves significant space for putting money back into the business and protects the payment from possible earnings shifts. Also, analysts expect that future earnings growth will be faster than dividend growth, strengthening the dividend’s safety.

This pairing of a growing dividend supported by a low payout ratio tackles a main risk in dividend investing: the chance that a high yield is only a sign of a troubled company or an unstable payment plan. ALSN’s profile indicates a dividend that is both dependable and has potential to increase.

Basic Strength: Profitability and Financial Condition

A lasting dividend requires a profitable core business and a firm balance sheet. This is why screening for adequate profitability and health scores is a vital step in the process. Allison Transmission performs well here, with ChartMill Ratings of 8 for Profitability and 7 for Health.

The company’s profitability measures are outstanding within the machinery sector. Its operating margin of 31.70% and profit margin of 22.78% are near the top of its group. High returns on assets (12.67%) and invested capital (15.60%) show effective use of capital to produce earnings—the same earnings that finally support the dividend. This operational quality supplies the basic cash flow source for shareholder returns.

Financially, the company displays both power and a point to watch. Its liquidity is excellent, with current and quick ratios well above sector norms, confirming it can easily meet near-term needs. However, its debt-to-equity ratio is high, pointing to a use of debt financing. This is balanced by a good Debt to Free Cash Flow ratio of 3.82, implying the company could settle its debt with just under four years of cash flow, which stacks up well against most sector rivals. A firm, liquid balance sheet ensures the company can handle economic changes without putting its dividend at risk.

Price and Growth Setting

From a price standpoint, ALSN seems priced appealingly. With a Price-to-Earnings (P/E) ratio of 11.34 and a Forward P/E of 9.77, the stock is valued lower than about 95% of its sector peers and the wider S&P 500. This pricing offers a buffer for investors.

Growth has been slow lately, with small drops in trailing EPS and revenue. Still, the view is more positive, with analysts predicting a rise in both earnings (14.03%) and revenue (14.49%) growth in the next few years. For a dividend investor, this expected growth backs the argument for ongoing dividend hikes and improves the possibility for overall return.

Final Thoughts

Allison Transmission offers an example of using a measured, quality-centered screen for dividend stocks. It is not only a high-yield narrative but one of a quality industrial firm with high profitability, firm liquidity, and a clear, durable pledge to growing its shareholder payment. The appealing price compared to its own past and peers includes another element of interest.

For investors applying this method, ALSN meets the important criteria: a dependable and growing dividend (Rating: 7) backed by very good operational profitability (Rating: 8) and firm financial health (Rating: 7). This three-part combination forms the base of a durable income investment.

You can examine the complete basic analysis that backs these ratings here: Fundamental Analysis Report for ALSN.

Find Other Dividend Options Allison Transmission was found using a structured screen for high-quality dividend payers. If you want to investigate other stocks that fit similar standards of strong dividend, profitability, and health ratings, you can perform the same screen yourself. Click here to open the "Best Dividend Stocks" screener and view the complete list of present outcomes.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The information presented is based on data provided and should not be the sole basis for any investment decision. Investing involves risk, including the potential loss of principal. Always conduct your own due diligence and consider consulting with a qualified financial advisor before making any investment decisions.