PSC Insurance Group (ASX:PSI) Is Increasing Its Dividend To AU$0.065

PSC Insurance Group Limited (ASX:PSI) has announced that it will be increasing its dividend on the 13th of October to AU$0.065. Despite this raise, the dividend yield of 2.5% is only a modest boost to shareholder returns.

Check out our latest analysis for PSC Insurance Group

PSC Insurance Group's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, PSC Insurance Group's was paying out quite a large proportion of earnings and 85% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

Earnings per share could rise by 20.7% over the next year if things go the same way as they have for the last few years. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 76%, which is on the higher side, but certainly still feasible.

PSC Insurance Group Is Still Building Its Track Record

The dividend's track record has been pretty solid, but with only 6 years of history we want to see a few more years of history before making any solid conclusions. Since 2015, the dividend has gone from AU$0.024 to AU$0.10. This works out to be a compound annual growth rate (CAGR) of approximately 28% a year over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

PSC Insurance Group's Dividend Might Lack Growth

Investors could be attracted to the stock based on the quality of its payment history. PSC Insurance Group has impressed us by growing EPS at 21% per year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which PSC Insurance Group hasn't been doing.

We'd also point out that PSC Insurance Group has issued stock equal to 12% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Our Thoughts On PSC Insurance Group's Dividend

Overall, we always like to see the dividend being raised, but we don't think PSC Insurance Group will make a great income stock. Strong earnings growth means PSC Insurance Group has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 4 warning signs for PSC Insurance Group that investors should take into consideration. We have also put together a list of global stocks with a solid dividend.

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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.
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