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The board of Olympia Financial Group Inc. (TSE:OLY) has announced that it will pay a dividend of CA$0.23 per share on the 29th of October. Based on this payment, the dividend yield on the company's stock will be 5.6%, which is an attractive boost to shareholder returns.
Olympia Financial Group's Earnings Easily Cover the Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, Olympia Financial Group was paying out 94% of earnings, but a comparatively small 59% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
EPS is set to grow by 8.1% over the next year if recent trends continue. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 89%, which is on the higher side, but certainly still feasible.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2011, the first annual payment was CA$2.60, compared to the most recent full-year payment of CA$2.76. Its dividends have grown at less than 1% per annum over this time frame. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.
We Could See Olympia Financial Group's Dividend Growing
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Olympia Financial Group has impressed us by growing EPS at 8.1% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.
Our Thoughts On Olympia Financial Group's Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Olympia Financial Group's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.
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. Taking the debate a bit further, we've identified 2 warning signs for Olympia Financial Group that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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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