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 June to $0.275. The payment will take the dividend yield to 1.9%, which is in line with the average for the industry.

Check out our latest analysis for LKQ

LKQ's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, LKQ was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 7.6%. If the dividend continues on this path, the payout ratio could be 23% by next year, which we think can be pretty sustainable going forward.

LKQ Doesn't Have A Long Payment History

Without a track record of dividend payments, we can't make a judgement on how stable it 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

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. LKQ has impressed us by growing EPS at 19% per year over the past five years. LKQ definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

LKQ Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that LKQ is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 3 warning signs for LKQ that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of 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.