Sonic Automotive's (NYSE:SAH) Upcoming Dividend Will Be Larger Than Last Year's

Sonic Automotive, Inc.'s (NYSE:SAH) dividend will be increasing from last year's payment of the same period to $0.38 on 15th of October. Based on this payment, the dividend yield for the company will be 1.9%, which is fairly typical for the industry.

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Sonic Automotive's Payment Could Potentially Have Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. However, prior to this announcement, Sonic 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.

The next year is set to see EPS grow by 103.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 19% by next year, which is in a pretty sustainable range.

View our latest analysis for Sonic Automotive

Sonic Automotive Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $0.10 in 2015, and the most recent fiscal year payment was $1.52. This means that it has been growing its distributions at 31% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

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 Sonic Automotive has been growing its earnings per share at 12% a year over the past five years. Sonic Automotive definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Sonic Automotive Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Sonic Automotive 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. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for Sonic Automotive (of which 1 shouldn't be ignored!) 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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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.