Penske Automotive Group's (NYSE:PAG) Dividend Will Be Increased To $0.72
Penske Automotive Group, Inc. (NYSE:PAG) will increase its dividend from last year's comparable payment on the 1st of September to $0.72. Even though the dividend went up, the yield is still quite low at only 1.6%.
View our latest analysis for Penske Automotive Group
Penske Automotive Group's Earnings Easily Cover The Distributions
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Penske Automotive Group was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.
Looking forward, earnings per share is forecast to fall by 12.7% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 17%, which is comfortable for the company to continue in the future.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of $0.52 in 2013 to the most recent total annual payment of $2.64. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. Penske Automotive 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
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Penske Automotive Group has impressed us by growing EPS at 21% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
We Really Like Penske Automotive 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 company is generating plenty of cash, and the earnings also quite easily cover the distributions. 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. All of these factors considered, we think this has solid potential as a dividend stock.
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. Just as an example, we've come across 4 warning signs for Penske Automotive Group you should be aware of, and 1 of them makes us a bit uncomfortable. Is Penske Automotive Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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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