Updated 3/5/25
Allison Transmission Holdings, Inc. (NYSE: ALSN) has built a name for itself as a powerhouse in the world of commercial-duty automatic transmissions. If you’ve ever seen a massive truck rolling down the highway or a military vehicle powering through tough terrain, there’s a good chance Allison’s technology is under the hood.
For over a century, the company has been at the forefront of innovation in the transmission industry, supplying a diverse range of customers across defense, energy, and transportation sectors. With a strong history of reliability, ALSN has established itself as a market leader in fully automatic transmissions for medium- and heavy-duty vehicles.
For dividend investors, this stock presents an interesting opportunity. While it doesn’t boast the highest yield out there, it makes up for that with strong earnings growth, disciplined financial management, and a low payout ratio—suggesting future dividend increases are likely. Let’s take a closer look at how ALSN stacks up as a dividend investment.
Key Dividend Metrics
📈 Dividend Yield: 1.12% (Forward)
💵 Annual Dividend Per Share: $1.08
🛡️ Payout Ratio: 12.03% (Plenty of room for increases)
📊 5-Year Average Dividend Yield: 1.68%
📅 Ex-Dividend Date: March 3, 2025
💰 Dividend Growth Rate (5-Year): Steady but not aggressive
Dividend Overview
At first glance, ALSN’s dividend yield of 1.12% might not turn heads, especially for those seeking high-yield income stocks. But what stands out is how sustainable this dividend is. With a payout ratio of just 12.03%, the company is using only a fraction of its earnings to fund dividends. That means the dividend isn’t just safe—it has significant room to grow.
Comparing its trailing annual dividend yield of 1.04% to the 5-year average of 1.68% reveals that stock price appreciation has slightly outpaced dividend growth. This is a sign that the company has been performing well, but dividend increases haven’t quite kept up with the rising share price.
Dividend Growth and Safety
Allison Transmission has taken a measured approach to dividend increases. The company doesn’t make dramatic hikes, but it does maintain a consistent, reliable payout strategy.
A big reason for the dividend’s security is the company’s strong cash flow. With operating cash flow coming in at $801 million and levered free cash flow at $525.75 million, ALSN has plenty of financial flexibility.
From a safety standpoint, this dividend is rock solid. The payout ratio is exceptionally low, and even in an economic downturn, the company would have no trouble maintaining its dividend. If anything, ALSN could afford to be more aggressive with increases given its strong balance sheet.
Chart Analysis
The price action for Allison Transmission (ALSN) has been in an interesting phase recently. The stock had a strong run-up through most of last year, peaking above $120 before pulling back sharply. The recent drop has pushed the price below the 50-day moving average, which had been acting as a key support level during its uptrend.
Now, the stock is hovering near the 200-day moving average, a major long-term trend indicator. This could be an important test for ALSN—if buyers step in and defend this level, it could signal a potential bounce. On the other hand, if the price decisively breaks below it, momentum could shift further to the downside.
Volume has been relatively steady, though there was a noticeable spike in selling pressure around mid-February. That suggests some distribution took place, with larger investors potentially taking profits after the extended run-up. The RSI indicator is also worth noting—it has been trending lower, indicating weakening momentum. Right now, it’s in the lower range but hasn’t quite reached extreme oversold territory.
The last five trading sessions show some back-and-forth movement, with wicks on both ends of the candles. That suggests some indecision, as neither buyers nor sellers have fully taken control. If the stock can reclaim the 50-day moving average, it would be a bullish sign, while continued weakness near the 200-day moving average could indicate further downside risk.
Analyst Ratings
📊 Allison Transmission Holdings, Inc. (NYSE: ALSN) has recently seen mixed analyst ratings, reflecting both optimism and caution regarding its future performance.
🔼 Upgrades:
📈 On December 17, 2024, Morgan Stanley raised its price target for Allison Transmission from $110 to $112, maintaining an “equal weight” rating. This adjustment signals a more favorable valuation outlook, driven by the company’s strong cash flow and operational efficiency. Analysts noted continued strength in demand for commercial-duty automatic transmissions as a key factor in the revision.
🔽 Downgrades:
📉 On February 12, 2025, Citigroup lowered its price target from $120 to $115, keeping a “neutral” rating. The downgrade was based on concerns about potential headwinds in the trucking and defense sectors, which could impact future revenue growth. Analysts also highlighted the stock’s recent run-up, suggesting it may have limited upside in the near term.
🎯 The average consensus price target for Allison Transmission currently stands at $100.75, reflecting a balanced market sentiment. While some analysts see upside potential due to the company’s earnings strength, others remain cautious about macroeconomic factors that could impact demand.
Earnings Report Summary
Allison Transmission recently posted its latest earnings report, and the numbers show a company that’s holding strong and continuing to grow. The fourth quarter and full-year results for 2024 came in solid, with revenue and earnings both moving in the right direction. Demand for the company’s automatic transmissions remained steady, and its ability to manage costs helped boost overall profitability.
Fourth Quarter Highlights
Revenue for the fourth quarter landed at $796 million, which is up about 3% from the same time last year. A good chunk of that growth came from the North America On-Highway segment, as well as strong demand for service parts and support equipment.
Net income also ticked higher, coming in at $175 million, compared to $170 million in the previous year’s fourth quarter. It wasn’t a massive jump, but it’s a sign that the company is staying efficient and maintaining solid margins.
Earnings per share (EPS) for the quarter hit $2.01, up from $1.91 last year. Investors always keep an eye on EPS, and this steady increase reflects how well the company is managing its business.
Full-Year Performance
For the full year, revenue came in at $3.2 billion, which represents 6% growth over the previous year. That’s a strong sign that demand is still there, and the company is executing well.
Net income was $731 million, an increase from $673 million in 2023. That kind of profitability shows the strength of the company’s operations, even in a market that’s had its share of ups and downs.
EPS for the full year was $8.31, marking a 12% increase from the prior year. That’s the kind of number that gets long-term investors interested, as it suggests a company that’s consistently growing and delivering value.
Other Key Takeaways
Allison has also been expanding its product lineup. One of the big moves last year was the introduction of the 6,000 Series transmission, which is built for the mining industry. This could open up new opportunities in a global market that’s always looking for better and more durable equipment.
The North America On-Highway market, one of Allison’s biggest segments, saw 2% sales growth in the fourth quarter, reaching $478 million. Meanwhile, the service parts and support equipment segment climbed 5% to $143 million, indicating that maintenance and aftermarket sales remain a reliable revenue stream.
Financial Strength
The company remains in solid financial shape, with strong earnings and disciplined spending. Allison has done a good job balancing growth with profitability, which puts it in a strong position heading into the next year. While challenges always exist in the industry, the company’s performance in 2024 shows it has the stability and momentum to keep moving forward.
Financial Health and Stability
Beyond dividends, financial stability is crucial for long-term investors. ALSN has some impressive metrics that showcase its profitability and efficiency.
Return on equity (ROE) stands at a stellar 50.69%, meaning the company generates significant returns for shareholders. Return on assets (ROA) is also solid at 12.25%, demonstrating its ability to convert assets into profit effectively.
One of the company’s strengths is its liquidity. With a current ratio of 3.04, ALSN can comfortably cover short-term obligations. However, one concern is its debt load. The debt-to-equity ratio sits at 395.90%, which is quite high. While the company has shown that it can manage its debt effectively, this is something to keep an eye on, especially in a rising interest rate environment.
Valuation and Stock Performance
ALSN’s stock has been on a strong upward trajectory, recently trading at $97.41. Over the past year, it has gained 26.46%, significantly outperforming the S&P 500’s 13.19% increase.
From a valuation perspective, the company still appears reasonably priced. The trailing price-to-earnings (P/E) ratio of 11.60 and forward P/E of 10.81 suggest that investors aren’t overpaying for earnings. The enterprise value-to-EBITDA ratio of 8.92 also indicates that the stock isn’t overly expensive compared to its profitability.
While ALSN has already delivered strong gains, its valuation suggests there’s still room for further appreciation, especially if earnings growth continues.
Risks and Considerations
Like any investment, ALSN comes with some risks.
One of the biggest concerns is its high debt load. While the company generates strong cash flow, carrying a high level of debt always introduces some level of risk, particularly if borrowing costs rise or economic conditions tighten.
Another factor to consider is the cyclical nature of its business. ALSN is heavily tied to industries like trucking, defense, and energy, which can experience ups and downs depending on broader economic trends. A slowdown in freight demand or government defense spending could impact revenue.
Additionally, while ALSN has delivered strong stock price appreciation, its dividend growth hasn’t been as aggressive. Investors primarily seeking high-yield stocks may find more attractive options elsewhere.
Final Thoughts
Allison Transmission isn’t the kind of stock that will excite high-yield investors, but it offers something even more valuable—stability and growth potential.
This is a company that generates strong cash flow, maintains a low payout ratio, and operates in industries with long-term demand. The dividend is highly secure, and while the yield isn’t the highest, there’s plenty of room for future increases.
For investors who value a combination of dividend reliability and stock appreciation, ALSN makes a compelling case. It’s a solid pick for those who want a steady, growing income stream alongside long-term capital growth potential.
Recent Comments