Safety Insurance Group (NASDAQ:SAFT) Is Paying Out 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 13th of December. This means the annual payment is 4.2% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Safety Insurance Group

Safety Insurance Group's Projected Earnings Seem Likely To Cover Future Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Safety Insurance Group was paying out 71% of earnings and more than 75% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

Looking forward, could fall by 3.1% if the company can't turn things around from the last few years. If recent patterns in the dividend continue, we could see the payout ratio reaching 77% in the next 12 months which is on the higher end of the range we would say is sustainable.

Safety Insurance Group Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $2.40 in 2014, and the most recent fiscal year payment was $3.60. This works out to be a compound annual growth rate (CAGR) of approximately 4.1% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. In the last five years, Safety Insurance Group's earnings per share has shrunk at approximately 3.1% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

In Summary

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. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Safety Insurance Group has been making. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Safety Insurance Group that you should be aware of before investing. 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.