Donegal Group's (NASDAQ:DGIC.A) Dividend Will Be $0.1725

The board of Donegal Group Inc. (NASDAQ:DGIC.A) has announced that it will pay a dividend of $0.1725 per share on the 18th of February. The dividend yield will be 4.5% based on this payment which is still above the industry average.

View our latest analysis for Donegal Group

Donegal Group's Future Dividend Projections Appear Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, Donegal Group was paying out 92% of earnings, but a comparatively small 56% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Over the next year, EPS is forecast to expand by 84.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 52%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Donegal Group Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the annual payment back then was $0.526, compared to the most recent full-year payment of $0.69. This means that it has been growing its distributions at 2.8% 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 Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. However, Donegal Group has only grown its earnings per share at 3.0% per annum over the past five years. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.

Our Thoughts On Donegal Group's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We don't think Donegal Group is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Donegal Group that investors need to be conscious of moving forward. 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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