Safety Insurance Group (NASDAQ:SAFT) Will Pay A Dividend Of $0.90
The board of Safety Insurance Group, Inc. (NASDAQ:SAFT) has announced that it will pay a dividend on the 15th of December, with investors receiving $0.90 per share. Based on this payment, the dividend yield on the company's stock will be 4.2%, which is an attractive boost to shareholder returns.
See our latest analysis for Safety Insurance Group
Safety Insurance Group Doesn't Earn Enough To Cover Its Payments
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 97% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 71%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
Looking forward, EPS could fall by 2.4% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 104%, which could put the dividend under pressure if earnings don't start to improve.
Safety Insurance Group Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was $2.00 in 2012, and the most recent fiscal year payment was $3.60. This means that it has been growing its distributions at 6.1% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
The Dividend's Growth Prospects Are Limited
Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. In the last five years, Safety Insurance Group's earnings per share has shrunk at approximately 2.4% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Safety Insurance Group's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 3 warning signs for Safety Insurance Group that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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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