E-L Financial (TSE:ELF) Has Re-Affirmed Its Dividend Of CA$2.50

The board of E-L Financial Corporation Limited (TSE:ELF) has announced that it will pay a dividend on the 15th of July, with investors receiving CA$2.50 per share. This means the annual payment is 14% of the current stock price, which is above the average for the industry.

Check out our latest analysis for E-L Financial

E-L Financial Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, E-L Financial was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

If the company can't turn things around, EPS could fall by 5.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 119%, which could put the dividend in jeopardy if the company's earnings don't improve.

E-L Financial Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The first annual payment during the last 10 years was CA$0.50 in 2012, and the most recent fiscal year payment was CA$10.00. This implies that the company grew its distributions at a yearly rate of about 35% over that duration. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

Dividend Growth Is Doubtful

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. It's not great to see that E-L Financial's earnings per share has fallen at approximately 5.5% per year over the past five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

In Summary

In summary, we are pleased with the dividend remaining consistent, and we think there is a good chance of this continuing in the future. With shrinking earnings, the company may see some issues maintaining the dividend even though they look pretty sustainable for now. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for E-L Financial that investors need to be conscious of moving forward. Is E-L Financial not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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