Penske Automotive Group, Inc. (NYSE:PAG) will increase its dividend from last year's comparable payment on the 3rd of September to $1.32. This will take the annual payment to 3.0% of the stock price, which is above what most companies in the industry pay.
Penske Automotive Group's Projected Earnings Seem Likely To Cover Future Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. However, prior to this announcement, Penske Automotive Group's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.
The next year is set to see EPS grow by 3.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 38% by next year, which is in a pretty sustainable range.
View our latest analysis for Penske Automotive Group
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the annual payment back then was $0.84, compared to the most recent full-year payment of $5.28. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Penske Automotive Group has been growing its earnings per share at 30% a year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.
Penske Automotive Group Looks Like A Great Dividend Stock
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Penske Automotive Group (of which 1 is concerning!) you should know about. Is Penske Automotive Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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