Diamond Hill Investment Group's (NASDAQ:DHIL) Dividend Will Be $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. Based on this payment, the dividend yield on the company's stock will be 5.8%, which is an attractive boost to shareholder returns.

See 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. However, based ont he last payment, Diamond Hill Investment Group was earning enough to cover the dividend pretty comfortably. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

Looking forward, earnings per share could rise by 2.2% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 59%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Diamond Hill Investment Group might have put its house in order since then, but we remain cautious.

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

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings have grown at around 2.2% a year for the past five years, which isn't massive but still better than seeing them shrink. While growth may be thin on the ground, Diamond Hill Investment Group could always pay out a higher proportion of earnings to increase shareholder returns.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Diamond Hill Investment Group's payments, as there could be some issues with sustaining them into the future. While Diamond Hill Investment Group is earning enough to cover the dividend, we are generally unimpressed with its future prospects. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Diamond Hill Investment Group that investors should know about before committing capital to this stock. 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.