Erie Indemnity's (NASDAQ:ERIE) Shareholders Will Receive A Bigger Dividend Than Last Year
The board of Erie Indemnity Company (NASDAQ:ERIE) has announced that it will be paying its dividend of $1.19 on the 20th of July, an increased payment from last year's comparable dividend. This makes the dividend yield about the same as the industry average at 2.1%.
See our latest analysis for Erie Indemnity
Erie Indemnity's Earnings Easily Cover The Distributions
Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Erie Indemnity's was paying out quite a large proportion of earnings and 78% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.
The next year is set to see EPS grow by 16.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 71%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Erie Indemnity Has A Solid Track Record
The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $2.21 in 2013 to the most recent total annual payment of $4.76. This means that it has been growing its distributions at 8.0% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
Erie Indemnity Could Grow Its Dividend
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Erie Indemnity has impressed us by growing EPS at 8.0% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. This company is not in the top tier of income providing stocks.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Now, if you want to look closer, it would be worth checking out our free research on Erie Indemnity management tenure, salary, and performance. Is Erie Indemnity 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.
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