Eagers Automotive (ASX:APE) Will Pay A Larger Dividend Than Last Year At A$0.24

Eagers Automotive Limited (ASX:APE) has announced that it will be increasing its periodic dividend on the 22nd of September to A$0.24, which will be 9.1% higher than last year's comparable payment amount of A$0.22. The payment will take the dividend yield to 5.0%, which is in line with the average for the industry.

Check out our latest analysis for Eagers Automotive

Eagers Automotive's Earnings Easily Cover The Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. The last dividend was quite easily covered by Eagers Automotive's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

EPS is set to fall by 5.4% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could reach 80%, which is definitely on the higher side.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the dividend has gone from A$0.174 total annually to A$0.71. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Eagers Automotive has been growing its earnings per share at 16% a 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.

Eagers Automotive Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All of these factors considered, we think this has solid potential as a dividend stock.

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. To that end, Eagers Automotive has 3 warning signs (and 1 which shouldn't be ignored) 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.