Peter Warren Automotive Holdings Limited's (ASX:PWR) dividend is being reduced from last year's payment covering the same period to A$0.06 on the 2nd of October. The yield is still above the industry average at 6.7%.

Check out our latest analysis for Peter Warren Automotive Holdings

Peter Warren Automotive Holdings' Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite easily covered by Peter Warren Automotive Holdings' earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 3.4% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 67% by next year, which is in a pretty sustainable range.

Peter Warren Automotive Holdings' Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. Since 2021, the annual payment back then was A$0.18, compared to the most recent full-year payment of A$0.12. This works out to a decline of approximately 33% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

We Could See Peter Warren Automotive Holdings' Dividend Growing

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. We are encouraged to see that Peter Warren Automotive Holdings has grown earnings per share at 6.4% per year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

In Summary

Overall, while it's not great to see that the dividend has been cut, we think the company is now in a good position to make consistent payments going into the future. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Peter Warren Automotive Holdings has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.