National General Insurance (P.J.S.C.) (DFM:NGI) Is Paying Out A Larger Dividend Than Last Year

National General Insurance Co. (P.J.S.C.) (DFM:NGI) has announced that it will be increasing its dividend from last year's comparable payment on the 1st of January to AED0.45. This takes the dividend yield to 7.3%, which shareholders will be pleased with.

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 38% 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

A big dividend yield for a few years doesn't mean much if it can't be sustained. 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. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

If the trend of the last few years continues, EPS will grow by 48.8% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 42%, which is in the range that makes us comfortable with the sustainability of the dividend.

View 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. The annual payment during the last 10 years was AED0.227 in 2015, and the most recent fiscal year payment was AED0.45. This implies that the company grew its distributions at a yearly rate of about 7.1% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. National General Insurance (P.J.S.C.) might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. 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.

Our Thoughts On National General Insurance (P.J.S.C.)'s Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While National General Insurance (P.J.S.C.) is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for National General Insurance (P.J.S.C.) (of which 1 is a bit concerning!) 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.