The board of International General Insurance Holdings Ltd. (NASDAQ:IGIC) has announced that it will be increasing its dividend on the 20th of April to US$0.19. This will take the annual payment from 3.6% to 4.9% of the stock price, which is above what most companies in the industry pay.
International General Insurance Holdings' Earnings Easily Cover the Distributions
A big dividend yield for a few years doesn't mean much if it can't be sustained. However, prior to this announcement, International General Insurance Holdings' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
The next year is set to see EPS grow by 28.9%. If the dividend continues on this path, the payout ratio could be 52% by next year, which we think can be pretty sustainable going forward.
International General Insurance Holdings' Dividend Has Lacked Consistency
The track record isn't the longest, but we are already seeing a bit of instability in the payments. The dividend has gone from US$0.18 in 2020 to the most recent annual payment of US$0.26. This works out to be a compound annual growth rate (CAGR) of approximately 20% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see International General Insurance Holdings has been growing its earnings per share at 29% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.
International General Insurance Holdings Looks Like A Great Dividend Stock
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for International General Insurance Holdings that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
What are the risks and opportunities for International General Insurance Holdings?
Price-To-Earnings ratio (6.5x) is below the US market (15x)
Revenue is forecast to grow 17.51% per year
Earnings grew by 82% over the past year
Earnings are forecast to decline by an average of 2% per year for the next 3 years
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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.