We Wouldn't Be Too Quick To Buy Turners Automotive Group Limited (NZSE:TRA) Before It Goes Ex-Dividend

Readers hoping to buy Turners Automotive Group Limited (NZSE:TRA) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 13th of January to receive the dividend, which will be paid on the 28th of January.

Turners Automotive Group's next dividend payment will be NZ$0.047 per share, and in the last 12 months, the company paid a total of NZ$0.16 per share. Looking at the last 12 months of distributions, Turners Automotive Group has a trailing yield of approximately 5.3% on its current stock price of NZ$3.2. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Turners Automotive Group has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Turners Automotive 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. Turners Automotive Group has a low and conservative payout ratio of just 22% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Turners Automotive Group paid out more free cash flow than it generated - 130%, to be precise - last year, which we think is concerningly 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.

Turners Automotive Group paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Turners Automotive Group to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Turners Automotive Group paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that Turners Automotive Group's earnings are down 3.2% a year over the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past seven years, Turners Automotive Group has increased its dividend at approximately 19% a year on average.

Final Takeaway

Has Turners Automotive Group got what it takes to maintain its dividend payments? Turners Automotive Group's earnings per share have fallen noticeably and, although it paid out less than half its profit as dividends last year, it paid out a disconcertingly high percentage of its cashflow, which is not a great combination. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Turners Automotive Group. Be aware that Turners Automotive Group is showing 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

If you decide to trade Turners Automotive Group, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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