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Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Autosports Group Limited (ASX:ASG) has recently paid dividends to shareholders, and currently yields 5.4%. Does Autosports Group tick all the boxes of a great dividend stock? Below, I'll take you through my analysis.
Check out our latest analysis for Autosports Group
5 checks you should do on a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
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Is it the top 25% annual dividend yield payer?
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Does it consistently pay out dividends without missing a payment of significantly cutting payout?
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Has dividend per share amount increased over the past?
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Is its earnings sufficient to payout dividend at the current rate?
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Will it have the ability to keep paying its dividends going forward?
How well does Autosports Group fit our criteria?
The current trailing twelve-month payout ratio for the stock is 71%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 61% which, assuming the share price stays the same, leads to a dividend yield of around 6.2%. However, EPS should increase to A$0.099, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If there is one thing that you want to be reliable in your life, it's dividend stocks and their constant income stream. Unfortunately, it is really too early to view Autosports Group as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Autosports Group has a yield of 5.4%, which is high for Specialty Retail stocks but still below the market's top dividend payers.
Next Steps:
If Autosports Group is in your portfolio for cash-generating reasons, there may be better alternatives out there. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company's fundamentals and underlying business before making an investment decision. I've put together three key factors you should look at: