Carsales: A history of dividend growth

I recently caught up with Peter Switzer to discuss the performance of the Switzer Dividend Growth Fund (ASX:SWTZ), and how we expect the fund to perform in a low interest rate environment.

A key objective of the Switzer Dividend Growth Fund is to provide a growing stream of income, maximising franking where possible, and long-term capital growth by investing in a portfolio of blue-chip Australian shares. The Fund has a yield* of 7.5% (9.8% including franking).

As such, we look for stocks with stable cash flows and a history of consistent dividends.

In this mid-monthly update, I would like to present a stock we hold in the SWTZ portfolio that reflects this investment philosophy, Carsales.Com Ltd (ASX:CAR).

* Yield calculation based on distributions paid during the 12-months to 31 May 2019 relative to the closing unit price at the beginning of the period.

Stock in focus: Carsales.Com Ltd (ASX:CAR)

Carsales is the largest online automotive, motorcycle and marine classifieds business in Australia. It also has operations across Asia Pacific and South America, which provides regional diversification and international exposure. The company develops world leading technology and advertising solutions that drive its business around the world.

Revenue is generated by display ads, as well as private and dealer transactions. The first half revenue of 2019 increased +17% as compared to the same period last year.

CAR revenue and NPAT

Source: Carsales

Australian Operations

Carsales is the dominant market player across all metrics of reputation, site engagement and inventory in Australia. It is a mature business which provides stable and reliable cashflow.

CARsales web metrics

Source: Carsales

International Operations

International operations are the growth opportunities for the group. Its international strategy has three key steps:

  • establish clear market leading position in target markets
  • monetise and extend clear market-leading position
  • leverage clear market leading position for earnings growth

After acquiring the remaining holding of SK Encar in 2018, Carsales now has 100% control ownership of South Korea’s number one online auto classifieds business. SK Encar grows at double digits and has strong growth potential both in market size and industry structure.

SK Encar’s Growth Opportunity

SK Encar growth

Source: Carsales


The Switzer Dividend Growth Fund portfolio targets companies with a history of sustainably growing their dividends. CAR’s underlying business generates stable and reliable free cash flows which support growing dividend payments. As the below chart shows, CAR’s dividend payments have been on an upward trend for the past 10 years.

Strong historical dividend growth

Carsales dividends (cents per share)

Carsales dividends 201906


CAR has strong established positions in markets that generate sustainable cashflows that allow the company to grow earnings and dividends. As such, CAR is an attractive stock for a yield and quality focussed fund such as SWTZ.

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