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Autosports Group's (ASX:ASG) Upcoming Dividend Will Be Larger Than Last Year's

Autosports Group Limited (ASX:ASG) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of November to A$0.10. This takes the dividend yield to 7.9%, which shareholders will be pleased with.

See our latest analysis for Autosports Group

Autosports Group's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Autosports Group's dividend was only 58% of earnings, however it was paying out 124% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

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Over the next year, EPS is forecast to expand by 0.6%. If the dividend continues on this path, the payout ratio could be 73% by next year, which we think can be pretty sustainable going forward.

historic-dividend
historic-dividend

Autosports Group's Dividend Has Lacked Consistency

It's comforting to see that Autosports Group has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of A$0.046 in 2017 to the most recent total annual payment of A$0.20. This means that it has been growing its distributions at 28% per annum over that time. Autosports Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Autosports Group has grown earnings per share at 20% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Autosports Group could prove to be a strong dividend payer.

Our Thoughts On Autosports Group's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Autosports Group that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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.