Turners Automotive Group's (NZSE:TRA) Shareholders Will Receive A Bigger Dividend Than Last Year

Turners Automotive Group Limited (NZSE:TRA) has announced that it will be increasing its dividend from last year's comparable payment on the 29th of July to NZ$0.1059. This takes the annual payment to 4.1% of the current stock price, which unfortunately is below what the industry is paying.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Turners Automotive Group's Payment Could Potentially Have Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, Turners Automotive Group's dividend was only 50% of earnings, however it was paying out 2,120% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

The next year is set to see EPS grow by 33.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 65% by next year, which is in a pretty sustainable range.

See our latest analysis for Turners Automotive Group

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of NZ$0.08 in 2015 to the most recent total annual payment of NZ$0.255. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year 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.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Turners Automotive Group has been growing its earnings per share at 12% a year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On Turners Automotive Group's 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 a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

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. For example, we've identified 2 warning signs for Turners Automotive Group (1 is a bit concerning!) that you should be aware of before investing. Is Turners Automotive Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.