Why American Financial Group, Inc. (NYSE:AFG) Is A Dividend Rockstar
There is a lot to be liked about American Financial Group, Inc. (NYSE:AFG) as an income stock. It has paid dividends over the past 10 years. The company currently pays out a dividend yield of 3.2% to shareholders, making it a relatively attractive dividend stock. Let’s dig deeper into whether American Financial Group should have a place in your portfolio.
Check out our latest analysis for American Financial Group
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How I analyze a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
Is it the top 25% annual dividend yield payer?
Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
Has dividend per share amount increased over the past?
Is is able to pay the current rate of dividends from its earnings?
Will the company be able to keep paying dividend based on the future earnings growth?
How well does American Financial Group fit our criteria?
American Financial Group has a trailing twelve-month payout ratio of 17%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 66% which, assuming the share price stays the same, leads to a dividend yield of around 6.2%. Furthermore, EPS should increase to $8.42. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
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. In the case of AFG it has increased its DPS from $0.52 to $3.1 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. This is an impressive feat, which makes AFG a true dividend rockstar.
Relative to peers, American Financial Group has a yield of 3.2%, which is high for Insurance stocks but still below the market’s top dividend payers.
Next Steps:
Keeping in mind the dividend characteristics above, American Financial Group 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 essential factors you should further research:
Future Outlook: What are well-informed industry analysts predicting for AFG’s future growth? Take a look at our free research report of analyst consensus for AFG’s outlook.
Valuation: What is AFG 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 AFG 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
