Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Headquartered in Bloomfield Hills, Penske Automotive (PAG) is a Retail-Wholesale stock that has seen a price change of 10.69% so far this year. The auto dealership chain is currently shelling out a dividend of $1.22 per share, with a dividend yield of 2.89%. This compares to the Automotive - Retail and Whole Sales industry's yield of 0.21% and the S&P 500's yield of 1.56%.
Looking at 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%. Future dividend growth will depend on earnings growth as well as 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%. This means it paid out 35% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for PAG for this fiscal year. The Zacks Consensus Estimate for 2025 is $13.90 per share, representing a year-over-year earnings growth rate of 1.16%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors have to be mindful 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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