Penske Automotive Group (NYSE:PAG) Has Announced That It Will Be Increasing Its Dividend To $1.40

Penske Automotive Group, Inc.'s (NYSE:PAG) dividend will be increasing from last year's payment of the same period to $1.40 on 5th of March. This will take the dividend yield to an attractive 3.3%, providing a nice boost to shareholder returns.

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Penske Automotive Group's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, prior to this announcement, Penske Automotive Group'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 11.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 39%, which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for Penske Automotive Group

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was $0.92 in 2016, and the most recent fiscal year payment was $5.60. This works out to be a compound annual growth rate (CAGR) of approximately 20% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

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. It's encouraging to see that Penske Automotive Group has been growing its earnings per share at 16% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Penske Automotive Group's prospects of growing its dividend payments 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. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Penske Automotive Group has 2 warning signs (and 1 which makes us a bit uncomfortable) we think 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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