In July of last year, my colleague John Oravec took a look at the dividend safety of automaker Stellantis (NYSE: STLA).
The Dutch company has 14 brands of autos, including Chrysler, Dodge, Ram trucks, Jeep, and Maserati.
When John evaluated Stellantis in July, the stock had a dividend safety rating of “B” and a dividend yield of 8.4%. While the company had plenty of cash flow, free cash flow was expected to decline by nearly 20% in 2024, so its rating was not perfect. (Anytime free cash flow falls or is expected to fall, a penalty is assessed to the stock’s dividend safety rating.)
Now that we’re into 2025, let’s see whether anything has changed.
Looking at the free cash flow estimates from back in July versus where they are now reminds me of Bob Uecker in the movie Major League calling a pitch four feet off the plate “just a bit outside.”
Instead of bringing in nearly 10 billion euros in free cash flow as previously expected, the company is now projected to have delivered negative free cash flow in 2024.
However, free cash flow is forecast to rebound to €4.8 billion in 2025.
Even so, that €4.8 billion figure is less than half of the total the company generated each year from 2021 to 2023.
Since free cash flow will likely be negative in 2024, the payout ratio is negative. But this year’s anticipated €4.8 billion figure may still barely be enough to pay the dividend. In 2024, Stellantis paid out around €4.4 billion in dividends. Assuming it pays somewhere near that amount in 2025, the payout ratio will be well above my 75% threshold.
The company has been in its current form since 2021. It paid special dividends that year, and it began paying a regular annual dividend in 2022.
Stellantis raised the dividend significantly in each of the last two years. The most recent dividend, which was paid last May, was $1.65 per share, giving the stock a huge 11.7% yield on the current price. (Though the company reports its financial results in euros, its dividends are paid in U.S. dollars.)
In each of the past three years, the company declared the dividend in February or March when it reported its full-year earnings, and it paid the dividend in May.
Stellantis will report its full-year 2024 earnings a week from today on Wednesday, February 26, so I expect to get clarity on its dividend very soon.
Because of Stellantis’ falling free cash flow and troubling payout ratio, its dividend safety has deteriorated greatly since July. The dividend cannot be considered safe unless free cash flow improves dramatically.
Dividend Safety Rating: D
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