Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. However, 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
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 16.48% since the start of the year. The auto dealership chain is currently shelling out a dividend of $1.26 per share, with a dividend yield of 2.84%. This compares to the Automotive - Retail and Whole Sales industry's yield of 0.22% and the S&P 500's yield of 1.6%.
Taking a look at the company's dividend growth, its current annualized dividend of $5.04 is up 23.2% 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 30.89%. 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%. This means 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 $13.94 per share, with earnings expected to increase 1.46% 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. But, not every company offers a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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 ReportThis article originally published on Zacks Investment Research (zacks.com).
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