Principal Financial Group's (NASDAQ:PFG) Shareholders Will Receive A Bigger Dividend Than Last Year

Principal Financial Group, Inc. (NASDAQ:PFG) has announced that it will be increasing its dividend from last year's comparable payment on the 27th of June to $0.76. This will take the annual payment to 3.7% of the stock price, which is above what most companies in the industry pay.

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Principal Financial Group's Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Principal Financial Group was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to expand by 114.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 31%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for Principal Financial Group

Principal Financial Group Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the dividend has gone from $1.36 total annually to $3.04. This implies that the company grew its distributions at a yearly rate of about 8.4% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Principal Financial Group May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Although it's important to note that Principal Financial Group's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Growth of 1.4% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Principal Financial Group Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Principal Financial Group is a strong income stock thanks to its track record and growing earnings. 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Earnings growth generally bodes well for the future value of company dividend payments. See if the 8 Principal Financial Group analysts we track are forecasting continued growth with our free report on analyst estimates for the company. 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.