The Carsales.com Ltd (ASX: CAR) share price has edged upwards after a sluggish start in early trade on Monday.
At the time of writing, Carsales shares are up 1.9% as the company announced a haircut to its final dividend payment of 2021 in its FY21 earnings report.
Let’s investigate further.
A quick recap on the Carsales dividend
Carsales has been returning cash to shareholders by way of its dividend payment since April 2010. Over that time, investors have realised $3.94 in dividends per Carsales share under the schedule.
In addition, Carsales has expanded its dividend at a compound annual growth rate (CAGR) of 12.8% over this time period when factoring in the most recent payment on 21 April 2021.
Moreover, the Carsales share price has climbed around 430% into the green over the past decade. Including dividends, the total return on Carsales shares is 514%.
Haircut to final dividend payment
In a move that could impact the Carsales share price, management decided to trim its final dividend by 10% to 22.5 cents per share.
This brings the annual payment to 47.5 cents per share, a small up-step from the year prior.
The move comes despite the fact Carsales reported “excellent free cash flow generation” and revenue growth in FY21.
For instance, the company recognised a 4% year-on-year increase in revenue. Its net profit after tax (NPAT) was $153 million, an 11% year-on-year gain.
Moreover, Carsales advises the haircut reflects the company’s recent acquisition of digital marketing corporation Trader Interactive. This is due to “the increase in the number of shares from the recent entitlement offer” as part of the deal.
The Trader Interactive business grew revenue and EBITDA by 12% and 25% year-on-year respectively, as per Carsales’ FY21 results.
Finally, the decision to keep its dividend even at 22.5 cents still represents an 80% dividend payout ratio for Carsales. The payout ratio is used to determine the sustainability of a company’s dividend.
It simply shows the percentage of a company’s earnings (or cash flow) that is used to pay its dividends.
The higher the payout ratio, the more a company is paying dividends out of its net income or earnings per share (EPS) for instance. An 80% dividend payout ratio means that for every $1 in EPS, Carsales is paying 80 cents out to shareholders in dividends.
Nonetheless, investors have been lukewarm towards the online automotive and marine classifieds business in early trade.
Carsales shares are now exchanging hands at $23.02 a piece, up 1.9% after a slow step into the green from the market open.
Carsales share price snapshot
The Carsales share price has climbed 16.67% into the green this year to date, extending the previous 12 months’ gain of 22%.
Over the past month, Carsales shares have risen a further 8%.
Carsale’s annual result has lagged the S&P/ASX 200 Index (ASX: XJO)’s return of around 24.5% over the past year.