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The board of The Travelers Companies, Inc. (NYSE:TRV) has announced that it will be increasing its dividend on the 30th of June to US$0.93. The announced payment will take the dividend yield to 2.0%, which is in line with the average for the industry.
Travelers Companies' Dividend Is Well Covered By Earnings
Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Travelers Companies 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 fall by 14.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 27%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Travelers Companies 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 2012, the first annual payment was US$1.64, compared to the most recent full-year payment of US$3.72. This means that it has been growing its distributions at 8.5% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
We Could See Travelers Companies' Dividend Growing
The company's investors will be pleased to have been receiving dividend income for some time. Travelers Companies has impressed us by growing EPS at 9.7% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Travelers Companies' prospects of growing its dividend payments in the future.
We Really Like Travelers Companies' Dividend
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The earnings easily cover the company's distributions, and the company is generating plenty of cash. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 17 Travelers Companies analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Is Travelers Companies not quite the opportunity you were looking for? Why not check out our selection of top 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.