Ituran Location and Control's (NASDAQ:ITRN) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Ituran Location and Control Ltd. (NASDAQ:ITRN) has announced that it will be increasing its dividend by 7.1% on the 12th of July to $0.15, up from last year's comparable payment of $0.14. Even though the dividend went up, the yield is still quite low at only 2.4%.

See our latest analysis for Ituran Location and Control

Ituran Location and Control's Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Ituran Location and Control was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 14.4%. If the dividend continues on this path, the payout ratio could be 24% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was $0.48 in 2013, and the most recent fiscal year payment was $0.56. This implies that the company grew its distributions at a yearly rate of about 1.6% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Ituran Location and Control hasn't seen much change in its earnings per share over the last five years.

Our Thoughts On Ituran Location and Control's Dividend

Overall, we always like to see the dividend being raised, but we don't think Ituran Location and Control will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Ituran Location and Control 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. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Ituran Location and Control you should be aware of, and 1 of them is a bit concerning. Is Ituran Location and Control 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.