Donegal Group (NASDAQ:DGIC.A) Has Announced A Dividend Of $0.17

The board of Donegal Group Inc. (NASDAQ:DGIC.A) has announced that it will pay a dividend on the 15th of August, with investors receiving $0.17 per share. This makes the dividend yield 4.6%, which will augment investor returns quite nicely.

View our latest analysis for Donegal Group

Donegal Group Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. While Donegal Group is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

The next 12 months is set to see EPS grow by 127.3%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.

Donegal Group Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $0.49 in 2013, and the most recent fiscal year payment was $0.68. This means that it has been growing its distributions at 3.3% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

The Company Could Face Some Challenges Growing The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Donegal Group has seen EPS rising for the last five years, at 18% per annum. It's not an ideal situation that the company isn't turning a profit but the growth recently is a positive sign. Assuming the company can post positive net income numbers soon, it could has the potential to be a decent dividend payer.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Donegal Group's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Donegal Group that you should be aware of before investing. 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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