Erie Indemnity's (NASDAQ:ERIE) Shareholders Will Receive A Bigger 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%.

Check out our latest analysis for Erie Indemnity

Erie Indemnity's Earnings Easily Cover the Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Erie Indemnity's dividend made up quite a large proportion of earnings but only 62% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

The next year is set to see EPS grow by 3.3%. If the dividend continues on this path, the payout ratio could be 66% by next year, which we think can be pretty sustainable going forward.

Erie Indemnity Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from US$2.06 in 2011 to the most recent annual payment of US$4.44. 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.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see Erie Indemnity has been growing its earnings per share at 12% a year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

Erie Indemnity Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Erie Indemnity is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. See if management have their own wealth at stake, by checking insider shareholdings 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.