U.S. markets closed
  • S&P 500

    3,465.39
    +11.90 (+0.34%)
     
  • Dow 30

    28,335.57
    -28.09 (-0.10%)
     
  • Nasdaq

    11,548.28
    +42.28 (+0.37%)
     
  • Russell 2000

    1,640.50
    +10.25 (+0.63%)
     
  • Crude Oil

    39.78
    -0.86 (-2.12%)
     
  • Gold

    1,903.40
    -1.20 (-0.06%)
     
  • Silver

    24.70
    -0.01 (-0.04%)
     
  • EUR/USD

    1.1868
    +0.0042 (+0.36%)
     
  • 10-Yr Bond

    0.8410
    -0.0070 (-0.83%)
     
  • GBP/USD

    1.3038
    -0.0042 (-0.32%)
     
  • USD/JPY

    104.7200
    -0.1200 (-0.11%)
     
  • BTC-USD

    13,019.25
    -292.88 (-2.20%)
     
  • CMC Crypto 200

    260.05
    -1.40 (-0.54%)
     
  • FTSE 100

    5,860.28
    +74.63 (+1.29%)
     
  • Nikkei 225

    23,516.59
    +42.32 (+0.18%)
     

Is Primerica, Inc. (NYSE:PRI) A Smart Pick For Income Investors?

Simply Wall St

Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!

Could Primerica, Inc. (NYSE:PRI) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.

With a 1.1% yield and a nine-year payment history, investors probably think Primerica looks like a reliable dividend stock. A 1.1% yield is not inspiring, but the longer payment history has some appeal. The company also bought back stock during the year, equivalent to approximately 4.3% of the company's market capitalisation at the time. There are a few simple ways to reduce the risks of buying Primerica for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on Primerica!

NYSE:PRI Historical Dividend Yield, July 10th 2019
NYSE:PRI Historical Dividend Yield, July 10th 2019

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. In the last year, Primerica paid out 15% of its profit as dividends. Given the low payout ratio, it is hard to envision the dividend coming under threat, barring a catastrophe.

Remember, you can always get a snapshot of Primerica's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. The first recorded dividend for Primerica, in the last decade, was nine years ago. During the past nine-year period, the first annual payment was US$0.04 in 2010, compared to US$1.36 last year. This works out to be a compound annual growth rate (CAGR) of approximately 48% a year over that time.

Primerica has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Dividend Growth Potential

The other half of the dividend investing equation is evaluating whether earnings per share (EPS) are growing. Over the long term, dividends need to grow at or above the rate of inflation, in order to maintain the recipient's purchasing power. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Primerica has grown its earnings per share at 23% per annum over the past five years. Earnings per share have grown rapidly, and the company is retaining a majority of its earnings. We think this is ideal from an investment perspective, if the company is able to reinvest these earnings effectively.

Conclusion

To summarise, shareholders should always check that Primerica's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Firstly, we like that Primerica has a low and conservative payout ratio. We were also glad to see it growing earnings, although its dividend history is not as long as we'd like. Overall we think Primerica is an interesting dividend stock, although it could be better.

Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 3 analysts we track are forecasting for Primerica for free with public analyst estimates for the company.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.