Essent Group (NYSE:ESNT) Is Increasing Its Dividend To $0.22

Essent Group Ltd. (NYSE:ESNT) will increase its dividend from last year's comparable payment on the 12th of September to $0.22. This takes the annual payment to 2.1% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for Essent Group

Essent Group's Earnings Will Easily Cover The Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable.

Having paid out dividends for only 3 years, Essent Group does not have much of a history being a dividend paying company. While it has a shorter history of paying out dividends, Essent Group's payout ratio of 9.5% is a great sign for current shareholders, as this means that earnings greatly cover dividends.

EPS is set to fall by 42.2% over the next 3 years. However, as estimated by analysts, the future payout ratio could be 13% over the same time period, which we think the company can easily maintain.

Essent Group Doesn't Have A Long Payment History

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2019, the dividend has gone from $0.60 total annually to $0.88. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Essent Group has grown earnings per share at 24% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

We Really Like Essent Group's Dividend

Overall, a dividend increase is always good, and we think that Essent Group is a strong income stock thanks to its track record and growing earnings. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. Just as an example, we've come across 3 warning signs for Essent Group you should be aware of, and 1 of them is a bit concerning. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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