Group 1 Automotive's (NYSE:GPI) Upcoming Dividend Will Be Larger Than Last Year's

By
Simply Wall St
Published
February 20, 2022
NYSE:GPI
Source: Shutterstock

The board of Group 1 Automotive, Inc. (NYSE:GPI) has announced that it will be increasing its dividend on the 15th of March to US$0.36. Despite this raise, the dividend yield of 0.8% is only a modest boost to shareholder returns.

View our latest analysis for Group 1 Automotive

Group 1 Automotive's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, prior to this announcement, Group 1 Automotive's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to expand by 7.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 3.8% by next year, which is in a pretty sustainable range.

historic-dividend
NYSE:GPI Historic Dividend February 20th 2022

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from US$0.44 to US$1.44. This works out to be a compound annual growth rate (CAGR) of approximately 13% 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. Group 1 Automotive has impressed us by growing EPS at 40% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Group 1 Automotive Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Group 1 Automotive (of which 1 is significant!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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