Autosports Group Limited's (ASX:ASG) dividend will be increasing from last year's payment of the same period to A$0.09 on 15th of November. This makes the dividend yield 8.6%, which is above the industry average.
Autosports Group's Payment Has Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite easily covered by Autosports Group's earnings. This means that a large portion of its earnings are being retained to grow the business.
Over the next year, EPS is forecast to fall by 3.5%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 74%, which is comfortable for the company to continue in the future.
Autosports Group's Dividend Has Lacked Consistency
Looking back, Autosports Group's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of A$0.046 in 2017 to the most recent total annual payment of A$0.18. This means that it has been growing its distributions at 31% per annum over that time. Autosports Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Autosports Group has impressed us by growing EPS at 21% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Autosports Group could prove to be a strong dividend payer.
We Really Like Autosports Group's Dividend
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Autosports Group (of which 1 can't be ignored!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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