LKQ (NASDAQ:LKQ) Will Pay A Larger Dividend Than Last Year At $0.275

LKQ Corporation (NASDAQ:LKQ) has announced that it will be increasing its dividend from last year's comparable payment on the 1st of December to $0.275. Based on this payment, the dividend yield for the company will be 2.1%, which is fairly typical for the industry.

Check out the opportunities and risks within the US Retail Distributors industry.

LKQ's Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. However, prior to this announcement, LKQ's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 4.8% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 22% by next year, which is in a pretty sustainable range.

LKQ Is Still Building Its Track Record

The company hasn't been paying a dividend for very long at all, so we can't really make a judgement on how stable the dividend has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that LKQ has grown earnings per share at 22% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

We Really Like LKQ's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 4 warning signs for LKQ you should be aware of, and 1 of them makes us a bit uncomfortable. Is LKQ not quite the opportunity you were looking for? Why not check out our selection of top 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.