Turners Automotive Group Limited (NZSE:TRA) stock is about to trade ex-dividend in four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Turners Automotive Group's shares on or after the 9th of January, you won't be eligible to receive the dividend, when it is paid on the 29th of January.

The company's next dividend payment will be NZ$0.0823529 per share, on the back of last year when the company paid a total of NZ$0.25 to shareholders. Based on the last year's worth of payments, Turners Automotive Group has a trailing yield of 4.6% on the current stock price of NZ$5.57. If you buy this business for its dividend, you should have an idea of whether Turners Automotive Group's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Turners Automotive Group

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Turners Automotive Group paid out 72% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Turners Automotive Group generated enough free cash flow to afford its dividend. Turners Automotive Group paid out more free cash flow than it generated - 115%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

While Turners Automotive Group's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Turners Automotive Group's ability to maintain its dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Turners Automotive Group earnings per share are up 7.6% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Turners Automotive Group has delivered 18% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Is Turners Automotive Group an attractive dividend stock, or better left on the shelf? Earnings per share have grown somewhat, although Turners Automotive Group paid out over half its profits and the dividend was not well covered by free cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Although, if you're still interested in Turners Automotive Group and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 2 warning signs for Turners Automotive Group (1 doesn't sit too well with us!) that deserve your attention before investing in the shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.