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Group 1 Automotive, Inc. (NYSE:GPI) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of September to $0.38. This takes the annual payment to 0.8% of the current stock price, which unfortunately is below what the industry is paying.
Check out our latest analysis for Group 1 Automotive
Group 1 Automotive's Earnings Easily Cover The Distributions
Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, Group 1 Automotive's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.
EPS is set to fall by 25.9% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 4.3%, which is comfortable for the company to continue in the future.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the dividend has gone from $0.52 total annually to $1.52. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. 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
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Group 1 Automotive has been growing its earnings per share at 48% a year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.
We Really Like Group 1 Automotive's Dividend
Overall, a dividend increase is always good, and we think that Group 1 Automotive is a strong income stock thanks to its track record and growing earnings. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All of these factors considered, we think this has solid potential as a dividend stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Group 1 Automotive has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.