Eagers Automotive (ASX:APE) Is Increasing Its Dividend To AU$0.42

Eagers Automotive Limited (ASX:APE) has announced that it will be increasing its dividend on the 20th of April to AU$0.42. Based on the announced payment, the dividend yield for the company will be 5.2%, which is fairly typical for the industry.

Check out our latest analysis for Eagers Automotive

Eagers Automotive's Earnings Easily Cover the Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. The last dividend was quite comfortably covered by Eagers Automotive's earnings, but it was a bit tighter on the cash flow front. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

Over the next year, EPS is forecast to fall by 19.0%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 71%, which is comfortable for the company to continue in the future.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The first annual payment during the last 10 years was AU$0.16 in 2012, and the most recent fiscal year payment was AU$0.85. This means that it has been growing its distributions at 18% per annum over that time. Eagers Automotive 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

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Eagers Automotive has grown earnings per share at 18% per year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

Our Thoughts On Eagers Automotive's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Eagers Automotive's payments are rock solid. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Eagers Automotive has been making. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Eagers Automotive has 3 warning signs (and 1 which is significant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.