CNA Financial's (NYSE:CNA) Upcoming Dividend Will Be Larger Than Last Year's
CNA Financial Corporation ( NYSE:CNA ) has announced that it will be increasing its dividend on the 2nd of June to US$0.40. This is an increase compared to last year's US$0.38 payment from the same period. This makes the dividend yield 7.7%, which is above the industry average.
Check out our latest analysis for CNA Financial
CNA Financial's Earnings Easily Cover the Distributions
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, prior to this announcement, CNA Financial's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
Over the next year, EPS is forecast to fall by 5.7%. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 92%, meaning that most of the company's earnings are being paid out to shareholders.
Dividend Volatility
Although the company has a long dividend history, it has been cut at once in the last 10 years. However, this cut was done on a special dividend, and the company's regular payments have actually grown overtime. Since 2011, the dividend has gone from US$0.40 to US$3.60. This works out to be a compound annual growth rate (CAGR) of approximately 25% a year over that time. Dividends have grown rapidly over this time, and we think that NYSE:CNA may be a good dividend stock for the long term.
The Dividend's Growth Prospects Are Limited
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings has been rising at 2.6% per annum over the last five years, which admittedly is a bit slow. While EPS growth is quite low, CNA Financial has the option to increase the payout ratio to return more cash to shareholders.
Our Thoughts On CNA Financial's Dividend
Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for CNA Financial that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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.
