Want to participate in a research study? Help shape the future of investing tools and earn a $60 gift card!
Attention dividend hunters! Erie Indemnity Company (NASDAQ:ERIE) will be distributing its dividend of US$0.90 per share on the 23 April 2019, and will start trading ex-dividend in 4 days time on the 05 April 2019. Is this future income stream a compelling catalyst for dividend investors to think about the stock as an investment today? Let's take a look at Erie Indemnity's most recent financial data to examine its dividend characteristics in more detail.
How I analyze a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has it increased its dividend per share amount over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it have the ability to keep paying its dividends going forward?
Does Erie Indemnity pass our checks?
The company currently pays out 62% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting lower payout ratio of 56% which, assuming the share price stays the same, leads to a dividend yield of 2.0%. However, EPS should increase to $6.08, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. ERIE has increased its DPS from $1.8 to $3.6 in the past 10 years. It has also been paying out dividend consistently during this time, as you'd expect for a company increasing its dividend levels. This is an impressive feat, which makes ERIE a true dividend rockstar.
Relative to peers, Erie Indemnity produces a yield of 2.0%, which is on the low-side for Insurance stocks.
Keeping in mind the dividend characteristics above, Erie Indemnity is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three pertinent aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for ERIE’s future growth? Take a look at our free research report of analyst consensus for ERIE’s outlook.
- Valuation: What is ERIE worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether ERIE is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
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 email@example.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.