Penske Automotive Group (NYSE:PAG) Is Paying Out A Larger Dividend Than Last Year

Penske Automotive Group, Inc. (NYSE:PAG) has announced that it will be increasing its dividend from last year's comparable payment on the 1st of June to $0.66. Even though the dividend went up, the yield is still quite low at only 1.7%.

View our latest analysis for Penske Automotive Group

Penske Automotive Group's Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, Penske Automotive Group 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 fall by 12.7%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 15%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of $0.48 in 2013 to the most recent total annual payment of $2.44. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

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. We are encouraged to see that Penske Automotive Group has grown earnings per share at 21% 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.

Penske Automotive Group Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Penske Automotive Group is a strong income stock thanks to its track record and growing earnings. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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. Just as an example, we've come across 4 warning signs for Penske Automotive Group you should be aware of, and 1 of them is a bit unpleasant. Is Penske Automotive Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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