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RenaissanceRe Holdings (NYSE:RNR) Is Increasing Its Dividend To US$0.36

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·3 min read
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The board of RenaissanceRe Holdings Ltd. (NYSE:RNR) has announced that it will be increasing its dividend on the 30th of September to US$0.36. Despite this raise, the dividend yield of 0.9% is only a modest boost to shareholder returns.

See our latest analysis for RenaissanceRe Holdings

RenaissanceRe Holdings' Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, RenaissanceRe Holdings was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 66.0% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 11% by next year, which is in a pretty sustainable range.

historic-dividend
historic-dividend

RenaissanceRe Holdings Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2011, the first annual payment was US$1.00, compared to the most recent full-year payment of US$1.44. This implies that the company grew its distributions at a yearly rate of about 3.7% over that duration. 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 Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though RenaissanceRe Holdings' EPS has declined at around 4.1% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. While the payments look sustainable for now, earnings have been shrinking so the dividend could come under pressure in the future. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for RenaissanceRe Holdings that you should be aware of before investing. 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. 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.

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