Wednesday, July 3, 2024

A "Stellar" 8.4% Dividend Yield

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AN OXFORD CLUB PUBLICATION

Wealthy Retirement

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Can Stellantis Maintain Its Stellar 8.4% Yield?

John Oravec, Research Analyst, The Oxford Club

John Oravec

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.

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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?
View larger image
 

Declining free cash flow is often a death knell for companies' dividends...

Does Stellantis have enough going for it to sustain its growing payout?

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