Don't Buy Autosports Group Limited (ASX:ASG) For Its Next Dividend Without Doing These Checks
Readers hoping to buy Autosports Group Limited (ASX:ASG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 14th of May in order to be eligible for this dividend, which will be paid on the 31st of May.
Autosports Group's next dividend payment will be AU$0.02 per share. Last year, in total, the company distributed AU$0.04 to shareholders. Looking at the last 12 months of distributions, Autosports Group has a trailing yield of approximately 1.6% on its current stock price of A$2.45. If you buy this business for its dividend, you should have an idea of whether Autosports Group's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for Autosports Group
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Autosports Group paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Autosports Group reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Autosports Group's dividend payments per share have declined at 3.4% per year on average over the past four years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
Remember, you can always get a snapshot of Autosports Group's financial health, by checking our visualisation of its financial health, here.
To Sum It Up
Is Autosports Group worth buying for its dividend? It's hard to get used to Autosports Group paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Autosports Group.
With that in mind though, if the poor dividend characteristics of Autosports Group don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 1 warning sign for Autosports Group that you should be aware of before investing in their shares.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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. 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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