Diamond Hill Investment Group (NASDAQ:DHIL) Has Affirmed Its Dividend Of $1.50

Diamond Hill Investment Group, Inc. (NASDAQ:DHIL) has announced that it will pay a dividend of $1.50 per share on the 15th of September. The dividend yield will be 5.8% based on this payment which is still above the industry average.

View our latest analysis for Diamond Hill Investment Group

Diamond Hill Investment Group's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. But before making this announcement, Diamond Hill Investment Group's earnings quite easily covered the dividend. The business is earning enough to make the dividend feasible, but the cash payout ratio of 80% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

If the trend of the last few years continues, EPS will grow by 2.2% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 59% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of $5.00 in 2013 to the most recent total annual payment of $10.00. This means that it has been growing its distributions at 7.2% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend's Growth Prospects Are Limited

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. Earnings has been rising at 2.2% per annum over the last five years, which admittedly is a bit slow. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Diamond Hill Investment Group has been making. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. As an example, we've identified 1 warning sign for Diamond Hill Investment Group that you should be aware of before investing. Is Diamond Hill Investment Group not quite the opportunity you were looking for? Why not check out our selection of top 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.