Safety Insurance Group, Inc. (NASDAQ:SAFT) will pay a dividend of $0.90 on the 15th of September. Based on this payment, the dividend yield on the company's stock will be 5.1%, which is an attractive boost to shareholder returns.
Safety Insurance Group Is Paying Out More Than It Is Earning
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.
Looking forward, EPS could fall by 11.1% 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 178%, which could put the dividend under pressure if earnings don't start to improve.
Safety Insurance Group Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2013, the annual payment back then was $2.40, compared to the most recent full-year payment of $3.60. This works out to be a compound annual growth rate (CAGR) of approximately 4.1% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.
Dividend Growth Potential Is Shaky
Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. Over the past five years, it looks as though Safety Insurance Group's EPS has declined at around 11% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.
The Dividend Could Prove To Be Unreliable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Safety Insurance Group (of which 2 are significant!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.