PSC Insurance Group's (ASX:PSI) Dividend Will Be Increased 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. This takes the annual payment to 2.5% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for PSC Insurance Group

PSC Insurance Group's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. The last dividend made up a very large portion of earnings and also represented 85% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

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. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 76%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

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 implies that the company grew its distributions at a yearly rate of about 28% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

PSC Insurance Group's Dividend Might Lack Growth

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see PSC Insurance Group has been growing its earnings per share at 21% a year over the past five years. However, PSC Insurance Group isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

The company has also been raising capital by issuing stock equal to 12% of shares outstanding in the last 12 months. 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

In summary, while it's always good to see the dividend being raised, we don't think PSC Insurance Group's payments are rock solid. 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. We don't think PSC Insurance Group is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 4 warning signs for PSC Insurance Group that you should be aware of before investing. 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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