Erie Indemnity (NASDAQ:ERIE) Has Announced That It Will Be Increasing Its Dividend To $1.27

The board of Erie Indemnity Company (NASDAQ:ERIE) has announced that the dividend on 23rd of January will be increased to $1.27, which will be 7.1% higher than last year's payment of $1.19 which covered the same period. Although the dividend is now higher, the yield is only 1.5%, which is below the industry average.

View our latest analysis for Erie Indemnity

Erie Indemnity's Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Erie Indemnity was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

Over the next year, EPS is forecast to expand by 18.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 57%, which is in the range that makes us comfortable with the sustainability of the dividend.

Erie Indemnity Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the annual payment back then was $2.37, compared to the most recent full-year payment of $4.76. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Erie Indemnity Could Grow Its Dividend

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 that Erie Indemnity has been growing its earnings per share at 9.2% a year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

Our Thoughts On Erie Indemnity's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payments look okay by most measures, the lack of cash flow could definitely cause problems for them in the future. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Now, if you want to look closer, it would be worth checking out our free research on Erie Indemnity management tenure, salary, and performance. 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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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.