Penske Automotive Group Delivers 34th Consecutive Quarterly Dividend Hike (NYSE:PAG)
By: Ned Piplovic,
Despite suspending its dividend distributions in the aftermath of the 2008 financial crisis, the Penske Automotive Group, Inc. (NYSE:PAG) — an automotive retail company that owns a network of multi-brand car and truck dealerships — has rewarded its shareholders with 34 consecutive quarterly dividend hikes since resuming dividend distributions in the second-quarter 2011.
Even before suspending its dividend distributions in 2009, the Penske Automotive Group has boosted its annual dividend payout amount every year since introducing dividend distributions in 2003. Despite more than two years of missing dividend payouts in 2009, 2010 and the first quarter of 2011, the Penske Automotive Group still enhanced its total annual payout amount nearly eight-fold since beginning dividend distributions in 2003. This pace of dividend advancement corresponds to an average growth rate of 14.7% every year over the 15-year period.
Additionally, the Penske Automotive Group’s 27% dividend payout ratio is very low. A low payout ratio indicates that the company uses less than 30% of its quarterly earnings to cover its dividend distribution payments. Therefore, the company has enough earnings to cover existing dividend payouts as well as to support the continuation of its current streak of consecutive quarterly dividend hikes. The fact that the current payout ratio is higher than the company’s own 25% ratio average over the past five years means that the Penske Automotive Group’s payout ratio is moving closer to the lower limit of the desirable range.
Investors generally deem a dividend payout ratio in the 30% to 50% range as desirable. Income-seeking investors generally look for equities that distribute at least 30% of their earnings as dividend payouts. A lower payout might not be enough to generate sufficient dividend income to attract income-seeking investors.
On the upper limit, payout ratios in excess of 50% indicate that the equity is using more than half of its earnings to cover its dividend distributions, which might not be sustainable in the long-term. While different sectors might have slightly different range limits, the 30% to 50% range is good general reference for the overall markets.
While the share price has faced some headwinds recently, the current price level has nearly 14% room on the upside before reaching the Wall Street analysts’ current average target price of $59.38. Furthermore, while one third — four out of 12 — analysts who are currently covering the stock have a “Hold” recommendation, there are twice as many analysts recommending a “Buy” (four) or a “Strong Buy” (four).
All interested investors should conduct their own detailed analysis to confirm the stock’s growth potential as well as gauge the stock’s compatibility with their own investment portfolio strategy. However, the investors that deem the Penske Automotive Group’s stock worthy of investment, also should consider taking any position in the stock before the company’s upcoming ex-dividend date on August 8, 2019. All investors who can claim stock ownership prior to the ex-dividend date will be eligible to receive the next round of dividend distributions on the September 4, 2019, pay date.
Penske Automotive Group, Inc. (NYSE:PAG)
Headquartered in Bloomfield Hills, Michigan, and founded in 1990, the Penske Automotive Group, Inc. is an international transportation services company and a direct holding of the Penske Corporation. In 1999, the Penske Corporation acquired the former United Automotive Group and changed its name in 2007. The Penske Automotive Group operates automotive and commercial truck dealerships principally in the United States, Canada and Western Europe. Additionally, the company distributes commercial vehicles, diesel engines, gas engines and related parts and services in Puerto Rico, Japan, Australia and New Zealand.
As of July 2019, the company operated 264 automotive retail franchises, as well as 14 standalone used car supercenters. Additionally, the company also operated 20 dealerships of heavy- and medium-duty trucks in North America primarily under the Freightliner and Western Star brand names. Lastly, the Penske Automotive Group is a Power Systems and Commercial Vehicle Distributor in Australia and New Zealand and has a 28.9% investment stake in Penske Truck Leasing.
The company’s current dividend hike increased the payout amount by 2.6% as the quarterly payout rose from $0.39 in the previous period to the current $0.40 per share distribution. Additionally, the current quarterly distribution is 11.1% higher than the $0.36 payout from the same period last year. The current quarterly payout amount corresponds to a $1.60 annualized payout and a 3.5% forward dividend yield. This current yield is 33% higher than the company’s own 2.55% yield average over the past five years.
In addition to outperforming its own five-year average, the Penske Automotive Group’s current yield outperformed the 2.03% average yield of its peers in the Services sector by more than 71%. Furthermore, the current 3.5% yield is also more than 132% above the 1.5% yield average of the Automotive Dealerships industry segment. Moreover, as the second highest yield in the Automotive Dealerships segment, the Penske Automotive Group’s 3.5% current yield also outperformed the 2.15% average yield of the segment’s only dividend-paying companies by 62%.
Since resuming quarterly dividend distributions in June 2011, the Penske Automotive Group has enhanced its quarterly dividend payout amount for 34 consecutive periods. Over that period of more than eight years, the quarterly dividend amount rose by 470%. This advancement is equivalent to an average growth rate of 5.7% each quarter, or 23.3% per year.
The long string of consecutive quarterly dividend hikes did maintain an attractive dividend income payout. Even so, it was unable to overcome a share price decline of nearly 12% over the trailing 12 months. However, the dividend payouts manged to cut the total losses over the last year to approximately 9%. Because the share price is virtually at the same level as it was in mid-2014, the entire 8.2% total return over the past five years came from dividend income payouts. However, the timing of a sharp share price drop in mid-2016 worked in favor of the three-year total return, which was slightly more than 25%.
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Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.