The board of Essent Group Ltd. (NYSE:ESNT) has announced that it will be increasing its dividend on the 10th of September to US$0.18. Despite this raise, the dividend yield of 1.4% is only a modest boost to shareholder returns.
Essent Group's Payment Has Solid Earnings Coverage
If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Essent Group was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.
Over the next year, EPS is forecast to expand by 15.7%. Assuming the dividend continues along recent trends, we think the payout ratio could be 12% by next year, which is in a pretty sustainable range.
Essent Group Is Still Building Its Track Record
Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. Since 2019, the first annual payment was US$0.60, compared to the most recent full-year payment of US$0.72. This works out to be a compound annual growth rate (CAGR) of approximately 9.5% a year over that time. Essent Group has been growing its dividend at a decent rate, and the payments have been stable. However, the payment history is very short, so there is no evidence yet that the dividend can be sustained over a full economic cycle.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see Essent Group has been growing its earnings per share at 19% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Essent Group's prospects of growing its dividend payments in the future.
We Really Like Essent Group's Dividend
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 2 warning signs for Essent Group that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.
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