Erie Indemnity (NASDAQ:ERIE) Is Paying Out A Larger Dividend Than Last Year

Erie Indemnity Company (NASDAQ:ERIE) will increase its dividend on the 20th of January to US$1.11. This makes the dividend yield about the same as the industry average at 2.2%.

See our latest analysis for Erie Indemnity

Erie Indemnity's Earnings Easily Cover the Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Erie Indemnity's dividend made up quite a large proportion of earnings but only 62% of free cash flows. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 3.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 66% by next year, which is in a pretty sustainable range.

Erie Indemnity 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 US$2.06 in 2012 to the most recent annual payment of US$4.44. This implies that the company grew its distributions at a yearly rate of about 8.0% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. Erie Indemnity has impressed us by growing EPS at 12% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

Erie Indemnity Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

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. You can also discover whether shareholders are aligned with insider interests by checking our visualisation of insider shareholdings and trades in Erie Indemnity stock. 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.