Turners Automotive Group (NZSE:TRA): A Compelling Income Play Amid Growth and Momentum

Turners Automotive Group (NZSE:TRA), a New Zealand-based automotive retail and financial services powerhouse, is emerging as a standout income investment. With a sustainable dividend yield of 4.6%, robust earnings growth, and a compelling technical backdrop, TRA offers a rare combination of income and growth for investors. Despite concerns about cash flow sustainability, the stock's fundamentals and strategic initiatives position it as a compelling buy for income-focused portfolios.

Dividend Sustainability: A Solid Foundation

TRA's dividend yield of 4.6% (as of June 2025) is well-supported by earnings, with a 67% payout ratio indicating dividends are comfortably covered by profits. The next dividend of NZ$0.1059 per share, payable on July 29, boosts the forward yield to 6.38% based on the current stock price of NZ$4.82. This represents a 51% increase from prior dividends, underscoring management's commitment to shareholder returns.

However, a red flag exists: the cash payout ratio of 2,459%, signaling dividends are not well-covered by operating cash flows. While this raises liquidity concerns, TRA's strong earnings growth—12% annually over three years—suggests cash flow could improve as profitability expands. Analysts project a future dividend yield of 5.8% over the next three years, assuming earnings momentum continues.

Earnings Growth: The Engine Behind the Dividend

TRA's recent financial performance has been stellar. Full-year 2025 results showed earnings per share (EPS) growth of 12%, outpacing analyst expectations by 5.4%. This growth is driven by its diversified segments: auto retail, finance, credit management, and insurance. Strategic moves, such as the acquisition of My Auto Shop, have expanded its retail footprint and bolstered margins.

The stock's price has risen steadily, up 15% year-to-date, reflecting investor confidence. Technical analysts highlight a 15.21% 3-month price target, citing strong relative strength and positive momentum indicators.

Risks and Considerations

• Cash Flow Dependency: The high cash payout ratio demands close monitoring. If earnings growth stalls, dividends could face pressure.
• Market Competition: The automotive retail sector is crowded, and TRA's success hinges on maintaining its market share.
• Economic Sensitivity: A downturn in consumer spending or financing availability could impact sales and profitability.

Insider Ownership and Sentiment

Insiders own 15% of TRA's shares, a strong signal of alignment between management and shareholders. This ownership concentration, combined with recent acquisitions and earnings beats, suggests confidence in the company's long-term prospects.

The Bottom Line: A Buy for Income Investors

TRA's 4.6% dividend yield, paired with 12% EPS growth and a compelling 15.21% near-term price target, makes it a compelling income play. While cash flow concerns warrant caution, the earnings trajectory and dividend growth trajectory are too strong to ignore.

Investment Recommendation: Buy TRA for a diversified income portfolio. The stock's valuation—14x forward P/E—remains reasonable relative to its growth rate. Investors should monitor cash flow metrics but remain optimistic about TRA's ability to sustain dividends and deliver capital appreciation.

For income-focused investors seeking a balance of yield and growth, Turners Automotive Group is a standout opportunity.