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Penske Automotive Group Makes A Pit Stop On Dividend Growth

Gary Gambino profile picture
Gary Gambino


  • Penske Automotive Group suspended its dividend after 9 years of steady growth.
  • Penske's P/E is low, but the company has a higher debt than its peers. Other dealers have better growth prospects.
  • Overall industry sales improvement expected in 2021 will still leave sales below 2019 levels.
  • The stock can be a speculative play on COVID-19 recovery but is not recommended for income or dividend growth investors.

End Of A Dividend Growth Era

Penske Automotive Group (NYSE:PAG) paid its last consecutive quarterly dividend in March 2020 ahead of the COVID-19 related shutdowns that impacted many industries. The company announced on May 13 that it would suspend the dividend to conserve cash and mitigate the impacts of the government-mandated shutdowns. The company also initiated a hiring freeze, deferred $150 million in capex, and furloughed 57% of its worldwide work force, among other actions. Penske has suspended its dividend once before, starting in 2009 with the financial crisis. It took 2.5 years until June 2011 for the company to resume the dividend at a level of $0.07 per quarter, a 22% cut from the $0.09 paid before the financial crisis. Penske began a rather unusual dividend policy at that time, increasing the payout by 1 cent each quarter until the $0.42 dividend in March 2020.

Penske Dividend History

Source: Seeking Alpha PAG Dividend History page

Penske's dividend yield and payout ratio were at the high end for its industry, but its debt levels are high as well. The company grew and diversified by both capex and acquisition, buying truck dealerships, used car superstores, and an expanded equity share in Penske Truck Leasing. While the dividend looked well covered by free cash flow, long-term debt issuance was often needed to support the acquisition strategy. Short-term debt also grew as Penske expanded the use of floor plan financing.

Penske uses of cash

Data Source: Seeking Alpha PAG Key Data Pages (Cash Flow Statement)

Penske debt history

Data Source: Seeking Alpha PAG Key Data Pages (Balance Sheet)

Penske's long-term debt is currently rated B+ by S&P and Ba3 by Moody's, several notches into junk territory. Compared to similar-sized peers Lithia Motors (LAD) and AutoNation (AN), Penske has lower interest coverage as defined by Operating Income/Interest Expense. As of Q1 2020, Penske's

This article was written by

Gary Gambino profile picture
I am a Chemical Engineer by training and have an MBA with concentrations in Finance and Operations Management. I retired early after 22 years in the energy industry with roles in engineering, planning, and financial analysis. I have managed my own portfolio since 1998 and have met my goal to match the S+P 500 return over the long term with lower volatility and higher income yield. I plan to focus my writing on positions I already hold or am considering changing, however my bias is toward long-term holding unless there is a very compelling reason to sell.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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