Lithia Motors (NYSE:LAD) Is Paying Out A Larger Dividend Than Last Year

Lithia Motors, Inc.'s (NYSE:LAD) dividend will be increasing from last year's payment of the same period to $0.53 on 24th of May. This takes the annual payment to 0.8% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Lithia Motors

Lithia Motors' Earnings Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Based on the last payment, Lithia Motors was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to expand by 37.3%. If the dividend continues on this path, the payout ratio could be 4.8% by next year, which we think can be pretty sustainable going forward.

Lithia Motors Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was $0.52 in 2014, and the most recent fiscal year payment was $2.12. This means that it has been growing its distributions at 15% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Lithia Motors has been growing its earnings per share at 25% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Our Thoughts On Lithia Motors' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Lithia Motors' payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Lithia Motors is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Lithia Motors that investors should know about before committing capital to this stock. Is Lithia Motors 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.