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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Group 1 Automotive, Inc. (NYSE:GPI) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 26th of February will not receive this dividend, which will be paid on the 15th of March.
Group 1 Automotive's next dividend payment will be US$0.31 per share, and in the last 12 months, the company paid a total of US$1.20 per share. Based on the last year's worth of payments, Group 1 Automotive stock has a trailing yield of around 0.8% on the current share price of $148.73. If you buy this business for its dividend, you should have an idea of whether Group 1 Automotive's dividend is reliable and sustainable. So we need to investigate whether Group 1 Automotive can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Group 1 Automotive has a low and conservative payout ratio of just 3.8% of its income after tax.
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. That's why it's comforting to see Group 1 Automotive's earnings have been skyrocketing, up 33% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Group 1 Automotive looks like a promising growth company.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Group 1 Automotive has increased its dividend at approximately 12% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
From a dividend perspective, should investors buy or avoid Group 1 Automotive? Companies like Group 1 Automotive that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. Group 1 Automotive ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.
In light of that, while Group 1 Automotive has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 2 warning signs for Group 1 Automotive you should be aware of.
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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