Cincinnati Financial (NASDAQ:CINF) Is Increasing Its Dividend To $0.87

Cincinnati Financial Corporation (NASDAQ:CINF) will increase its dividend from last year's comparable payment on the 15th of April to $0.87. This will take the dividend yield to an attractive 2.4%, providing a nice boost to shareholder returns.

View our latest analysis for Cincinnati Financial

Cincinnati Financial's Projected Earnings Seem Likely To Cover Future Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, prior to this announcement, Cincinnati Financial's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to fall by 67.7%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 74%, which is comfortable for the company to continue in the future.

Cincinnati Financial Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the dividend has gone from $1.76 total annually to $3.48. This implies that the company grew its distributions at a yearly rate of about 7.1% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Cincinnati Financial May Find It Hard To Grow The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings has been rising at 3.7% per annum over the last five years, which admittedly is a bit slow. While EPS growth is quite low, Cincinnati Financial has the option to increase the payout ratio to return more cash to shareholders.

We Really Like Cincinnati Financial's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. 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 of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Cincinnati Financial that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.