Sonic Automotive (NYSE:SAH) Will Pay A Larger Dividend Than Last Year At $0.30

Sonic Automotive, Inc.'s (NYSE:SAH) dividend will be increasing from last year's payment of the same period to $0.30 on 12th of January. This makes the dividend yield about the same as the industry average at 2.3%.

Check out our latest analysis for Sonic Automotive

Sonic Automotive Is Paying Out More Than It Is Earning

Solid dividend yields are great, but they only really help us if the payment is sustainable. Despite not generating a profit, Sonic Automotive is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.

The next 12 months is set to see EPS grow by 178.9%. If the dividend continues on its recent course, the payout ratio in 12 months could be 120%, which is a bit high and could start applying pressure to the balance sheet.

Sonic Automotive Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2013, the dividend has gone from $0.10 total annually to $1.20. This means that it has been growing its distributions at 28% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

The Company Could Face Some Challenges Growing The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Sonic Automotive has grown earnings per share at 14% per year over the past five years. Even though the company isn't making a profit, strong earnings growth could turn that around in the near future. If the company can become profitable soon, continuing on this trajectory would bode well for the future of the dividend.

Sonic Automotive's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Sonic Automotive's payments are rock solid. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. This company is not in the top tier of income providing stocks.

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 2 warning signs for Sonic Automotive that investors should know about before committing capital to this stock. 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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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.