Investors who want to cash in on KAR Auction Services, Inc.’s (NYSE:KAR) upcoming dividend of US$0.35 per share have only 4 days left to buy the shares before its ex-dividend date, 21 March 2019, in time for dividends payable on the 04 April 2019. Is this future income a persuasive enough catalyst for investors to think about KAR Auction Services as an investment today? Below, I’m going to look at the latest data and analyze the stock and its dividend property in further detail.
5 questions I ask before picking a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is it paying an annual yield above 75% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has it increased its dividend per share amount over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Will it have the ability to keep paying its dividends going forward?
Does KAR Auction Services pass our checks?
KAR Auction Services has a trailing twelve-month payout ratio of 57%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 44% which, assuming the share price stays the same, leads to a dividend yield of around 2.9%. However, EPS should increase to $2.52, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. The reality is that it is too early to consider KAR Auction Services as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, KAR Auction Services produces a yield of 2.9%, which is high for Commercial Services stocks but still below the market’s top dividend payers.
If you are building an income portfolio, then KAR Auction Services is a complicated choice since it has some positive aspects as well as negative ones. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three essential factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for KAR’s future growth? Take a look at our free research report of analyst consensus for KAR’s outlook.
- Valuation: What is KAR worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether KAR is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
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.