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AutoCanada to take another look at dividends

AutoCanada CEO Pat Priestner: 'We have opened the door to potential growth beyond what we could have reasonably imagined last year.'

Ian Jackson for The Globe and Mail/ian jackson The Globe and Mail

AutoCanada Inc. is reassessing its acquisition strategy and dividend policy, after two auto makers that had previously rejected the publicly traded group's overtures agreed to permit it to buy their dealerships.

The strategy adopted a year ago called for maximizing profits at AutoCanada's existing Chrysler Canada Inc., Hyundai Auto Canada and other dealerships and paying out a high percentage of those profits in dividends, chief executive officer Pat Priestner told investors on a conference call Wednesday.

That policy was established because several auto makers would not permit AutoCanada to buy their dealerships, which meant the ability to expand beyond existing franchises was limited.

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In recent weeks, however, General Motors of Canada Ltd. and Kia Canada Inc. agreed to let the Edmonton-based dealer group purchase, own and operate their dealerships, creating new growth potential and acquisition opportunities, which will require financing.

"We have opened the door to potential growth beyond what we could have reasonably imagined last year," Mr. Priestner said on a call to discuss the company's first-quarter financial results.

AutoCanada is taking a 31-per-cent stake in an existing GM dealership near Edmonton and Mr. Priestner will hold 100-per-cent voting control to meet the auto maker's requirement that the owner and operator of a dealership be a single person.

There is room to acquire more GM stores, he said. AutoCanada will build the Kia store from the ground up.

The board and senior management will examine the dividend and acquisition policies during the current quarter.

"There's no intention of not having a good dividend," Mr. Priestner noted.

The company raised its quarterly dividend to 15 cents from 14 cents after reporting strong first-quarter results.

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Profit rose to $4.1-million or 20 cents a share from $1.9-million or 10 cents a year earlier. Revenue jumped 18 per cent to $248.4-million from $210.8-million.

Assessing the dividend policy makes sense, said analyst Derek Dley, who follows the company for Canaccord Genuity in Vancouver.

"I think some may have been expecting a larger dividend increase, but I believe the one-penny-a-quarter raise was prudent given the new growth opportunities available to the company following last week's agreement with GM," Mr. Dley said.

AutoCanada is Canada's largest publicly traded dealership group. It owns 24 stores, 10 of which are Chrysler dealerships. About two-thirds of the 24 stores are in Alberta and British Columbia, but Mr. Priestner said last week that he's interested in expanding to Saskatchewan, where AutoCanada has no stores.

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