Diamond Hill Investment Group (NASDAQ:DHIL) Will Pay A Dividend Of $1.50

The board of Diamond Hill Investment Group, Inc. (NASDAQ:DHIL) has announced that it will pay a dividend of $1.50 per share on the 13th of September. The dividend yield will be 3.8% based on this payment which is still above the industry average.

Check out our latest analysis for Diamond Hill Investment Group

Diamond Hill Investment Group's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Diamond Hill Investment Group's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS could expand by 0.9% if recent trends continue. If the dividend continues on this path, the payout ratio could be 51% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from $8.00 total annually to $6.00. Doing the maths, this is a decline of about 2.8% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Diamond Hill Investment Group May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Unfortunately, Diamond Hill Investment Group's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. The company has been growing at a pretty soft 0.9% per annum, and is paying out quite a lot of its earnings to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

Our Thoughts On Diamond Hill Investment Group's Dividend

Overall, we think Diamond Hill Investment Group is a solid choice as a dividend stock, even though the dividend wasn't raised this year. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Diamond Hill Investment Group has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about. 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.