Essent Group's (NYSE:ESNT) Upcoming Dividend Will Be Larger Than Last Year's

Essent Group Ltd.'s (NYSE:ESNT) dividend will be increasing from last year's payment of the same period to $0.22 on 12th of September. Despite this raise, the dividend yield of 2.1% is only a modest boost to shareholder returns.

See our latest analysis for Essent Group

Essent Group's Dividend Forecasted To Be 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.

Essent Group has a short history of paying out dividends, with its current track record at only 3 years. Based on its last earnings report however, the payout ratio is at a comfortable 9.5%, meaning that Essent Group may be able to sustain this dividend for future years if it continues on this earnings trend.

EPS is set to fall by 12.9% over the next 3 years. Despite that, analysts estimate the future payout ratio could be 14% over the same time period, which is in a pretty comfortable range.

Essent Group Doesn't Have A Long Payment History

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 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. Essent Group has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. Essent Group has impressed us by growing EPS at 24% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Essent Group Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Essent Group (of which 1 is potentially serious!) you should know about. 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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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.