AMERISAFE (NASDAQ:AMSF) Is Due To Pay A Dividend Of $0.37

The board of AMERISAFE, Inc. (NASDAQ:AMSF) has announced that it will pay a dividend on the 22nd of March, with investors receiving $0.37 per share. This will take the annual payment to 9.4% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for AMERISAFE

AMERISAFE Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment was quite easily covered by earnings, but it made up 325% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS is forecast to fall by 51.0%. If the dividend continues along recent trends, we estimate the payout ratio could reach over 200%, which could put the dividend in jeopardy if the company's earnings don't improve.

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 $0.32 in 2014 to the most recent total annual payment of $4.98. This implies that the company grew its distributions at a yearly rate of about 32% over that duration. AMERISAFE has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

AMERISAFE May Find It Hard To Grow The Dividend

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. Over the past five years, it looks as though AMERISAFE's EPS has declined at around 2.7% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

AMERISAFE's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think AMERISAFE will make a great income stock. While AMERISAFE is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, AMERISAFE has 2 warning signs (and 1 which is potentially serious) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.