A diversified portfolio with stocks in different categories and sectors is the best way for most people to maximize their investments. If you have $1,000 available to invest and are looking for an excellent dividend stock, consider Ally financially (NYSE: ALLY). Here’s why it could be the ultimate dividend stock.
What makes a great dividend stock?
Yield is probably the first thing on an investor’s list when they think of a good dividend stock. The return is the return on the investment. If a dividend yields 1.35%, that is the average S&P500 return, you earn that much annually on your principal, or the amount of money you put into it.
For example, if you invest €100 in a stock with a dividend yield of 1.35%, you will receive €1.35 per year. That is why the return, even more than the actual amount of the dividend itself, receives attention.
But yield isn’t the only attribute that makes a great dividend. Too high a yield can even be a warning sign. It works inversely with the stock price, and a high return due to a falling stock price can indicate problems at the company.
Even if that isn’t the case, there are other factors that are important in a dividend stock. One of them is reliability. A dividend doesn’t mean much if you can’t trust it to be paid. This is especially true for retirees or others who rely on passive income.
Finally, you want to see the payout increase. If not, returns will decline and you won’t maximize your investment and passive income potential over time. A dividend that isn’t growing can be a signal that a company is in distress, and a growing dividend can be a signal that a company is committed to creating shareholder value.
How does Ally perform here?
Ally shares yield 3% at the current price. That’s more than double the S&P 500 average, putting it in a category of high-yield stocks. It’s not the tallest out there, but it’s stable, reliable and growing.
Ally is an interesting stock because it is a mix of old and new. It was spun off as the Financial segment General enginesSo it has more than a century of experience as a traditional, established financial company.
Auto lending remains the company’s core business and it is the largest auto loan provider in the country. It has a wealth of data that forms the basis for all its car loan decisions. Therefore, the company has strong asset quality and credit performance despite the hostile credit environment. There were a record 3.8 million loan applications in the first quarter of 2024, with $9.8 billion in new loans.
When it was founded as its own bank, it embraced a digital model and is the largest fully digital bank in the US. That gives it an edge over other banks that are moving towards digital services.
Customers love the services and more than 100,000 new personal accounts were added in the first quarter. Retail deposits rose by $2.9 billion in the first quarter to a total of $145.1 billion. Retail customers use Ally’s platform and 85% of investment accounts come from deposit account holders.
Ally hasn’t always increased its dividend annually. The banking sector is cyclical and many banks keep their dividends stable under pressure. Ally didn’t raise its dividend last year, but hasn’t missed a payment since paying out in 2016, two years after its initial public offering. Since then, it has grown 275%, which is an excellent track record for dividend growth compared to other banking and financial stocks.
No wonder it’s a Buffett stock
Warren Buffett’s holding company, Berkshire Hathaway, owns a 9.5% stake in Ally. Buffett likes dividends because they demonstrate management’s commitment to shareholders and provide security and passive income. Buying Ally stock is an excellent way to follow Buffett’s approach and reap the benefits of dividend investing.
Should You Invest $1,000 in Ally Financial Now?
Consider the following before purchasing shares in Ally Financial:
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Ally is an advertising partner of The Ascent, a Motley Fool company. Jennifer Saibil has no positions in any of the stocks mentioned. The Motley Fool holds positions in and recommends Berkshire Hathaway. The Motley Fool recommends General Motors and recommends the following options: In January 2025, $25 would appeal to General Motors. The Motley Fool has a disclosure policy.
The Ultimate Dividend Stock You Can Buy Right Now with $1,000 was originally published by The Motley Fool
