Olympia Financial Group (TSE:OLY) Is Increasing Its Dividend To CA$0.60

Olympia Financial Group Inc. (TSE:OLY) will increase its dividend from last year's comparable payment on the 29th of September to CA$0.60. This will take the annual payment to 7.7% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Olympia Financial Group

Olympia Financial Group's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Olympia Financial Group's dividend was only 49% of earnings, however it was paying out 159% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

If the trend of the last few years continues, EPS will grow by 18.1% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 49% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was CA$2.80 in 2013, and the most recent fiscal year payment was CA$7.20. This means that it has been growing its distributions at 9.9% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Olympia Financial Group 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. Olympia Financial Group has seen EPS rising for the last five years, at 18% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Olympia Financial Group 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. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Olympia Financial Group (1 makes us a bit uncomfortable!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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