Autosports Group (ASX:ASG) Will Pay A Larger Dividend Than Last Year At A$0.09

Autosports Group Limited's (ASX:ASG) dividend will be increasing from last year's payment of the same period to A$0.09 on 15th of November. This takes the dividend yield to 8.8%, which shareholders will be pleased with.

Our analysis indicates that ASG is potentially undervalued!

Autosports Group's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Autosports Group's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to fall by 3.5% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 74%, which is comfortable for the company to continue in the future.

Autosports Group's Dividend Has Lacked Consistency

Looking back, Autosports Group's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of A$0.046 in 2017 to the most recent total annual payment of A$0.18. This works out to be a compound annual growth rate (CAGR) of approximately 31% a year 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.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Autosports Group has grown earnings per share at 21% per year over the past five years. Autosports Group is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

Autosports Group Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Autosports Group is a strong income stock thanks to its track record and growing earnings. 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.

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. To that end, Autosports Group has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.