Erie Indemnity's (NASDAQ:ERIE) Shareholders Will Receive A Bigger Dividend Than Last Year
Erie Indemnity Company (NASDAQ:ERIE) will increase its dividend from last year's comparable payment on the 20th of July to $1.19. Based on this payment, the dividend yield for the company will be 2.1%, which is fairly typical for the industry.
Check out our latest analysis for Erie Indemnity
Erie Indemnity's Earnings Easily Cover The Distributions
Solid dividend yields are great, but they only really help us if the payment is sustainable. 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 we don't think that there are necessarily signs that the dividend might be unsustainable.
Looking forward, earnings per share is forecast to rise by 16.8% over the next year. 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 been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2013, the dividend has gone from $2.21 total annually to $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
The company's investors will be pleased to have been receiving dividend income for some time. Erie Indemnity has seen EPS rising for the last five years, at 8.0% per annum. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. Although they have been consistent in the past, we think the payments are a little high to be sustained. Overall, we don't think this company has the makings of a good income stock.
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. See if management have their own wealth at stake, by checking insider shareholdings in Erie Indemnity stock. 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.
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