The board of Primerica, Inc. (NYSE:PRI) has announced that it will be increasing its dividend on the 14th of March to US$0.55. This takes the annual payment to 1.3% of the current stock price, which unfortunately is below what the industry is paying.
Primerica's Earnings Easily Cover the Distributions
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, Primerica's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.
The next year is set to see EPS grow by 17.8%. If the dividend continues on this path, the payout ratio could be 18% by next year, which we think can be pretty sustainable going forward.
Primerica Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the dividend has gone from US$0.04 to US$2.20. This works out to be a compound annual growth rate (CAGR) of approximately 49% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see Primerica has been growing its earnings per share at 21% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.
We Really Like Primerica's Dividend
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Primerica that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid dividend.
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