All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Penske Automotive in Focus

Headquartered in Bloomfield Hills, Penske Automotive (PAG) is a Retail-Wholesale stock that has seen a price change of -2.66% so far this year. The auto dealership chain is currently shelling out a dividend of $1.22 per share, with a dividend yield of 3.29%. This compares to the Automotive - Retail and Whole Sales industry's yield of 0.26% and the S&P 500's yield of 1.57%.

In terms of dividend growth, the company's current annualized dividend of $4.88 is up 19.3% from last year. Over the last 5 years, Penske Automotive has increased its dividend 5 times on a year-over-year basis for an average annual increase of 26.65%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Penske's current payout ratio is 35%, meaning it paid out 35% of its trailing 12-month EPS as dividend.

PAG is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $13.78 per share, with earnings expected to increase 0.29% from the year ago period.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, PAG is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).

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Penske Automotive Group, Inc. (PAG) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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