Donegal Group's (NASDAQ:DGIC.A) Dividend Will Be Increased To US$0.17
The board of Donegal Group Inc. (NASDAQ:DGIC.A) has announced that it will be increasing its dividend by 3.1% on the 16th of May to US$0.17. This will take the annual payment from 4.7% to 4.7% of the stock price, which is above what most companies in the industry pay.
View our latest analysis for Donegal Group
Donegal Group's Dividend Is Well Covered By Earnings
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, Donegal Group was paying out 77% of earnings, but a comparatively small 26% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.
Looking forward, earnings per share is forecast to rise by 31.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 62%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Donegal Group Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the first annual payment was US$0.48, compared to the most recent full-year payment of US$0.64. This implies that the company grew its distributions at a yearly rate of about 2.9% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
Dividend Growth May Be Hard To Come By
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. Donegal Group has seen earnings per share falling at 7.1% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.
Our Thoughts On Donegal Group's Dividend
In summary, while it's always good to see the dividend being raised, we don't think Donegal Group's payments are rock solid. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We don't think Donegal Group is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 2 warning signs for Donegal Group that you should be aware of before investing. Is Donegal Group not quite the opportunity you were looking for? Why not check out our selection of top 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.
