Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Penske Automotive Group, Inc. (NYSE:PAG) is about to go ex-dividend in just 4 days. Ex-dividend means that investors that purchase the stock on or after the 8th of August will not receive this dividend, which will be paid on the 4th of September.
Penske Automotive Group's next dividend payment will be US$0.40 per share. Last year, in total, the company distributed US$1.60 to shareholders. Looking at the last 12 months of distributions, Penske Automotive Group has a trailing yield of approximately 3.5% on its current stock price of $45.37. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Penske Automotive Group has been able to grow its dividends, or if the dividend might be cut.
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. That's why it's good to see Penske Automotive Group paying out a modest 29% of its earnings. A useful secondary check can be to evaluate whether Penske Automotive Group generated enough free cash flow to afford its dividend. Dividends consumed 70% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. 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, Penske Automotive Group's earnings per share have been growing at 14% a year for the past five years. Penske Automotive Group is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Penske Automotive Group has delivered 16% dividend growth per year on average over the past 10 years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
From a dividend perspective, should investors buy or avoid Penske Automotive Group? Earnings per share have grown at a nice rate in recent times and over the last year, Penske Automotive Group paid out less than half its earnings and a bit over half its free cash flow. It's a promising combination that should mark this company worthy of closer attention.
Ever wonder what the future holds for Penske Automotive Group? See what the 11 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.