Cincinnati Financial's (NASDAQ:CINF) Dividend Will Be Increased To US$0.69

The board of Cincinnati Financial Corporation (NASDAQ:CINF) has announced that it will be increasing its dividend on the 15th of April to US$0.69. Based on the announced payment, the dividend yield for the company will be 2.1%, which is fairly typical for the industry.

See our latest analysis for Cincinnati Financial

Cincinnati Financial's Earnings Easily Cover the Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. However, prior to this announcement, Cincinnati Financial's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to fall by 58.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 42%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Cincinnati Financial Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the first annual payment was US$1.60, compared to the most recent full-year payment of US$2.76. This works out to be a compound annual growth rate (CAGR) of approximately 5.6% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see Cincinnati Financial has been growing its earnings per share at 32% a year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Cincinnati Financial Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All of these factors considered, we think this has solid potential as a dividend 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. As an example, we've identified 1 warning sign for Cincinnati Financial that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list 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.