Arthur J. Gallagher (NYSE:AJG) Is Increasing Its Dividend To $0.60

The board of Arthur J. Gallagher & Co. (NYSE:AJG) has announced that it will be increasing its dividend by 9.1% on the 15th of March to $0.60, up from last year's comparable payment of $0.55. Even though the dividend went up, the yield is still quite low at only 0.9%.

Check out our latest analysis for Arthur J. Gallagher

Arthur J. Gallagher's Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. The last dividend was quite easily covered by Arthur J. Gallagher's earnings. 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 122.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 24%, which is in the range that makes us comfortable with the sustainability of the dividend.

Arthur J. Gallagher Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the annual payment back then was $1.40, compared to the most recent full-year payment of $2.20. This implies that the company grew its distributions at a yearly rate of about 4.6% over that duration. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Arthur J. Gallagher Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Arthur J. Gallagher has impressed us by growing EPS at 5.2% per year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

Arthur J. Gallagher Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Arthur J. Gallagher is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 4 warning signs for Arthur J. Gallagher that investors need to be conscious of moving forward. 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.