Safety Insurance Group's (NASDAQ:SAFT) Dividend Will Be $0.90

The board of Safety Insurance Group, Inc. (NASDAQ:SAFT) has announced that it will pay a dividend on the 15th of September, with investors receiving $0.90 per share. The dividend yield will be 5.0% based on this payment which is still above the industry average.

View our latest analysis for Safety Insurance Group

Safety Insurance Group Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, the company's dividend was much higher than its earnings. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

EPS is set to fall by 11.2% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 179%, 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 annual payment during the last 10 years was $2.40 in 2013, 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. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. Safety Insurance Group's EPS has fallen by approximately 11% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Safety Insurance Group (2 are concerning!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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