National General Insurance (P.J.S.C.) (DFM:NGI) Has Announced That It Will Be Increasing Its Dividend To AED0.45

National General Insurance Co. (P.J.S.C.)'s (DFM:NGI) dividend will be increasing from last year's payment of the same period to AED0.45 on 9th of May. This makes the dividend yield about the same as the industry average at 6.3%.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that National General Insurance (P.J.S.C.)'s stock price has increased by 45% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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National General Insurance (P.J.S.C.)'s Future Dividend Projections Appear Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, National General Insurance (P.J.S.C.)'s dividend was only 58% of earnings, however it was paying out 277% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS could expand by 48.8% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 42% by next year, which is in a pretty sustainable range.

See our latest analysis for National General Insurance (P.J.S.C.)

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the annual payment back then was AED0.227, compared to the most recent full-year payment of AED0.45. This means that it has been growing its distributions at 7.1% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that National General Insurance (P.J.S.C.) has grown earnings per share at 49% per year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think National General Insurance (P.J.S.C.) is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for National General Insurance (P.J.S.C.) (of which 1 is significant!) you should know about. Is National General Insurance (P.J.S.C.) 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.