Autosports Group Limited (ASX:ASG) Pays A AU$0.10 Dividend In Just Four Days

Readers hoping to buy Autosports Group Limited (ASX:ASG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Autosports Group's shares on or after the 31st of October, you won't be eligible to receive the dividend, when it is paid on the 15th of November.

The company's next dividend payment will be AU$0.10 per share, and in the last 12 months, the company paid a total of AU$0.20 per share. Looking at the last 12 months of distributions, Autosports Group has a trailing yield of approximately 7.9% on its current stock price of A$2.54. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Autosports Group

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Autosports Group is paying out an acceptable 58% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the past year it paid out 112% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

While Autosports Group's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Autosports Group's ability to maintain its dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Autosports Group has grown its earnings rapidly, up 20% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Autosports Group has delivered an average of 28% per year annual increase in its dividend, based on the past six years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

From a dividend perspective, should investors buy or avoid Autosports Group? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 112% of its cashflow, which is uncomfortably high. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Autosports Group's dividend merits.

If you want to look further into Autosports Group, it's worth knowing the risks this business faces. Our analysis shows 2 warning signs for Autosports Group and you should be aware of these before buying any shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.