Safety Insurance Group (NASDAQ:SAFT) Has Announced A Dividend Of $0.90

Safety Insurance Group, Inc. (NASDAQ:SAFT) has announced that it will pay a dividend of $0.90 per share on the 15th of December. This means the annual payment is 4.0% of the current stock price, which is above the average for the industry.

See our latest analysis for Safety Insurance Group

Safety Insurance Group Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Looking forward, EPS could fall by 2.3% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 104%, which is definitely a bit high to be sustainable going forward.

Safety Insurance Group 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. The dividend has gone from an annual total of $2.00 in 2012 to the most recent total annual payment of $3.60. This works out to be a compound annual growth rate (CAGR) of approximately 6.1% 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.

Dividend Growth May Be Hard To Achieve

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Safety Insurance Group has seen earnings per share falling at 2.3% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Safety Insurance Group's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Safety Insurance Group's payments, as there could be some issues with sustaining them into the future. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Safety Insurance Group you should be aware of, and 1 of them is a bit concerning. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.