Turners Automotive Group Limited (NZSE:TRA) will increase its dividend on the 28th of July to NZ$0.082. This will take the annual payment from 6.3% to 7.1% of the stock price, which is above what most companies in the industry pay.
Turners Automotive 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, Turners Automotive Group's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Over the next year, EPS is forecast to expand by 0.3%. If recent patterns in the dividend continues, the payout ratio in 12 months could be 81% which is a bit high but can definitely be sustainable.
Turners Automotive Group's Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. Since 2014, the dividend has gone from NZ$0.05 to NZ$0.24. This means that it has been growing its distributions at 22% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
We Could See Turners Automotive Group's Dividend Growing
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Turners Automotive Group has seen EPS rising for the last five years, at 7.3% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.
Overall, we always like to see the dividend being raised, but we don't think Turners Automotive Group will make a great income stock. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Turners Automotive Group is a great stock to add to your portfolio if income is your focus.
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. Just as an example, we've come across 2 warning signs for Turners Automotive Group you should be aware of, and 1 of them makes us a bit uncomfortable. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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