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Turners Automotive Group's (NZSE:TRA) Upcoming Dividend Will Be Larger Than Last Year's

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Turners Automotive Group Limited (NZSE:TRA) will increase its dividend from last year's comparable payment on the 28th of July to NZ$0.0824. This takes the annual payment to 6.4% of the current stock price, which is about average for the industry.

View our latest analysis for Turners Automotive Group

Turners Automotive Group's Dividend Is Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Turners Automotive Group's earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

The next year is set to see EPS grow by 15.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 71% by next year, which is in a pretty sustainable range.

historic-dividend
historic-dividend

Turners Automotive Group's Dividend Has Lacked Consistency

It's comforting to see that Turners Automotive Group has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2014, the dividend has gone from NZ$0.05 total annually to NZ$0.24. This means that it has been growing its distributions at 22% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Turners Automotive Group Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Turners Automotive Group has been growing its earnings per share at 7.2% a year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

Our Thoughts On Turners Automotive Group's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Turners Automotive Group (1 can't be ignored!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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