Q: How safe do you think Magna’s dividend is?
Current earnings/cash flow seem to cover the dividend quite well, and buybacks could always be stopped/reduced if needed to maintain the dividend.
Even if it takes a few years for the auto industry to recover, Magna’s over 5% dividend yield at least pays us to be patient (assuming Magna can adapt to whatever the future of the auto industry looks like)?
Current earnings/cash flow seem to cover the dividend quite well, and buybacks could always be stopped/reduced if needed to maintain the dividend.
Even if it takes a few years for the auto industry to recover, Magna’s over 5% dividend yield at least pays us to be patient (assuming Magna can adapt to whatever the future of the auto industry looks like)?
5i Research Answer:
While no dividend is guaranteed, MG is in decent shape. Payout ratio based on operating cash flow is only 14%. The company has some leverage but not a worrying amount. It has non-North America business. Interest charges were $211M last year and cash flow was $3.6B. Note it did stop its dividend for 12 months starting in May 2009 following the financial crisis (it was smaller, but actually had a debt-free balance sheet at that time). The dividend was just raised in February and it is not like tariffs were not being discussed last month. Unless business conditions massively deteriorate even more, we would not be too concerned here.