Should You Buy Group 1 Automotive, Inc. (NYSE:GPI) For Its Upcoming Dividend In 4 Days?
It looks like Group 1 Automotive, Inc. (NYSE:GPI) is about to go ex-dividend in the next 4 days. If you purchase the stock on or after the 28th of February, you won't be eligible to receive this dividend, when it is paid on the 16th of March.
Group 1 Automotive's upcoming dividend is US$0.30 a share, following on from the last 12 months, when the company distributed a total of US$1.20 per share to shareholders. Calculating the last year's worth of payments shows that Group 1 Automotive has a trailing yield of 1.1% on the current share price of $106.15. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Group 1 Automotive has been able to grow its dividends, or if the dividend might be cut.
See our latest analysis for Group 1 Automotive
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Group 1 Automotive paid out just 12% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. What's good is that dividends were well covered by free cash flow, with the company paying out 7.5% of its cash flow last year.
It's positive to see that Group 1 Automotive's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Group 1 Automotive's earnings per share have been growing at 20% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, nine years ago, Group 1 Automotive has lifted its dividend by approximately 13% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Final Takeaway
Is Group 1 Automotive worth buying for its dividend? Group 1 Automotive has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Group 1 Automotive looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Ever wonder what the future holds for Group 1 Automotive? See what the six analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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