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Mercury General's (NYSE:MCY) Dividend Will Be US$0.64

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Mercury General Corporation (NYSE:MCY) has announced that it will pay a dividend of US$0.64 per share on the 30th of June. Based on this payment, the dividend yield on the company's stock will be 5.3%, which is an attractive boost to shareholder returns.

View our latest analysis for Mercury General

Mercury General's Distributions May Be Difficult To Sustain

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Mercury General is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. This gives us some comfort about the level of the dividend payments.

Looking forward, earnings per share is forecast to fall by 91.8% over the next year. This means that the company won't turn a profit over the next year, but with healthy cash flows at the moment the dividend could still be okay to continue.

historic-dividend
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Mercury General Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the first annual payment was US$2.40, compared to the most recent full-year payment of US$2.54. Dividend payments have grown at less than 1% a year over this period. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

The Company Could Face Some Challenges Growing The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see Mercury General has been growing its earnings per share at 28% a year over the past five years. Even though the company is not profitable, it is growing at a solid clip. If this trajectory continues and the company can turn a profit soon, it could bode well for the dividend going forward.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Mercury General that investors should know about before committing capital to this stock. Is Mercury General not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.