Erie Indemnity's (NASDAQ:ERIE) Dividend Will Be Increased To $1.19

The board of Erie Indemnity Company (NASDAQ:ERIE) has announced that it will be paying its dividend of $1.19 on the 20th of July, an increased payment from last year's comparable dividend. This makes the dividend yield about the same as the industry average at 2.1%.

View our latest analysis for Erie Indemnity

Erie Indemnity's Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. The last dividend made up a very large portion of earnings and also represented 78% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

Over the next year, EPS is forecast to expand by 16.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 71%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Erie Indemnity Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2013, the annual payment back then was $2.21, compared to the most recent full-year payment of $4.76. This works out to be a compound annual growth rate (CAGR) of approximately 8.0% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

We Could See Erie Indemnity's Dividend Growing

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Erie Indemnity has grown earnings per share at 8.0% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. Although they have been consistent in the past, we think the payments are a little high to be sustained. 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. However, there are other things to consider for investors when analysing stock performance. Now, if you want to look closer, it would be worth checking out our free research on Erie Indemnity management tenure, salary, and performance. Is Erie Indemnity 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.