CAR Group's (ASX:CAR) Dividend Will Be Increased To A$0.345

CAR Group Limited (ASX:CAR) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of April to A$0.345. This takes the dividend yield to 2.1%, which shareholders will be pleased with.

Check out our latest analysis for CAR Group

CAR Group's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, CAR Group was paying out 71% of earnings and more than 75% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

The next year is set to see EPS grow by 22.0%. If the dividend continues on this path, the payout ratio could be 64% by next year, which we think can be pretty sustainable going forward.

CAR Group Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was A$0.283 in 2014, and the most recent fiscal year payment was A$0.69. This implies that the company grew its distributions at a yearly rate of about 9.3% over that duration. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

CAR Group May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Earnings per share has been crawling upwards at 4.5% per year. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.

Our Thoughts On CAR Group's Dividend

In summary, while it's always good to see the dividend being raised, we don't think CAR Group's payments are rock solid. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 3 warning signs for CAR Group that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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