Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the 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
Penske Automotive (PAG) is headquartered in Bloomfield Hills, and is in the Retail-Wholesale sector. The stock has seen a price change of 6.7% since the start of the year. The auto dealership chain is currently shelling out a dividend of $1.22 per share, with a dividend yield of 3%. This compares to the Automotive - Retail and Whole Sales industry's yield of 0.23% 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. In the past five-year period, Penske Automotive has increased its dividend 5 times on a year-over-year basis for an average annual increase of 30.89%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, Penske's payout ratio is 35%, which means it paid out 35% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, PAG expects solid earnings growth. The Zacks Consensus Estimate for 2025 is $13.99 per share, which represents a year-over-year growth rate of 1.82%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers 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 ReportThis article originally published on Zacks Investment Research (zacks.com).
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