Donegal Group (NASDAQ:DGIC.A) Has Affirmed Its Dividend Of $0.1725

Donegal Group Inc.'s (NASDAQ:DGIC.A) investors are due to receive a payment of $0.1725 per share on 15th of August. This means the annual payment is 4.7% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Donegal Group

Donegal Group's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Donegal Group's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Analysts expect a massive rise in earnings per share in the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 52% which is fairly sustainable.

Donegal Group Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of $0.51 in 2014 to the most recent total annual payment of $0.69. This implies that the company grew its distributions at a yearly rate of about 3.1% over that duration. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Donegal Group's EPS has fallen by approximately 15% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Donegal Group that investors should know about before committing capital to this stock. Is Donegal 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.

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