Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Penske Automotive in Focus
Penske Automotive (PAG) is headquartered in Bloomfield Hills, and is in the Retail-Wholesale sector. The stock has seen a price change of 19.05% since the start of the year. The auto dealership chain is paying out a dividend of $0.39 per share at the moment, with a dividend yield of 3.25% compared to the Automotive - Retail and Whole Sales industry's yield of 0.51% and the S&P 500's yield of 1.88%.
Looking at dividend growth, the company's current annualized dividend of $1.56 is up 9.9% from last year. Over the last 5 years, Penske Automotive has increased its dividend 5 times on a year-over-year basis for an average annual increase of 14.90%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Penske's current payout ratio is 28%. This means it paid out 28% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, PAG expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $5.47 per share, representing a year-over-year earnings growth rate of 2.43%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, PAG presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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Penske Automotive Group, Inc. (PAG) : Free Stock Analysis Report
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