Safety Insurance Group, Inc. (NASDAQ:SAFT) will pay a dividend of $0.90 on the 15th of September. The dividend yield will be 4.0% based on this payment which is still above the industry average.
See our latest analysis for Safety Insurance Group
Safety Insurance Group’s Earnings Easily Cover The Distributions
A big dividend yield for a few years doesn’t mean much if it can’t be sustained. Prior to this announcement, Safety Insurance Group’s dividend made up quite a large proportion of earnings but only 49% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.
Over the next year, EPS could expand by 3.3% if recent trends continue. If the dividend continues on this path, the payout ratio could be 74% by next year, which we think can be pretty sustainable going forward.
Safety Insurance Group Has A Solid Track Record
Even over a long history of paying dividends, the company’s distributions have been remarkably stable. Since 2012, the dividend has gone from $2.00 total annually to $3.60. This implies that the company grew its distributions at a yearly rate of about 6.1% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
Dividend Growth May Be Hard To Achieve
Investors could be attracted to the stock based on the quality of its payment history. However, Safety Insurance Group has only grown its earnings per share at 3.3% per annum over the past five years. Safety Insurance Group’s earnings per share has barely grown, which is not ideal – perhaps this is why the company pays out the majority of its earnings to shareholders. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company’s dividend prospects.
We Really Like Safety Insurance Group’s Dividend
In summary, it is good to see that the dividend is staying consistent, and we don’t think there is any reason to suspect this might change over the medium term. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we’ve picked out 2 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.