July 25, 2024

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General For All

Eagers Automotive’s (ASX:APE) Upcoming Dividend Will Be Larger Than Last Year’s

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The board of Eagers Automotive Limited (ASX:APE) has announced that it will be increasing its dividend on the 20th of April to AU$0.42. Based on the announced payment, the dividend yield for the company will be 5.2%, which is fairly typical for the industry.

View our latest analysis for Eagers Automotive

Eagers Automotive’s Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. The last dividend was quite comfortably covered by Eagers Automotive’s earnings, but it was a bit tighter on the cash flow front. The business is earning enough to make the dividend feasible, but the cash payout ratio of 93% indicates it is more focused on returning cash to shareholders than growing the business.

Looking forward, earnings per share is forecast to fall by 19.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 71%, which we consider to be quite comfortable, with most of the company’s earnings left over to grow the business in the future.

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Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from AU$0.16 in 2012 to the most recent annual payment of AU$0.85. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it’s even more important to see if earnings per share is growing. Eagers Automotive has seen EPS rising for the last five years, at 18% per annum. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

Our Thoughts On Eagers Automotive’s Dividend

Overall, we always like to see the dividend being raised, but we don’t think Eagers Automotive will make a great income stock. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Eagers Automotive has been making. Overall, we don’t think this company has the makings of a good income stock.

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 3 warning signs for Eagers Automotive you should be aware of, and 1 of them can’t be ignored. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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