Arthur J. Gallagher (NYSE:AJG) Is Paying Out A Larger Dividend Than Last Year

Arthur J. Gallagher & Co. (NYSE:AJG) has announced that it will be increasing its periodic dividend on the 15th of March to $0.60, which will be 9.1% higher than last year's comparable payment amount of $0.55. Despite this raise, the dividend yield of 0.9% is only a modest boost to shareholder returns.

See our latest analysis for Arthur J. Gallagher

Arthur J. Gallagher's Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Based on the last payment, Arthur J. Gallagher was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 122.8% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 24% by next year, which is in a pretty sustainable range.

Arthur J. Gallagher Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $1.40 in 2014, and the most recent fiscal year payment was $2.20. This implies that the company grew its distributions at a yearly rate of about 4.6% over that duration. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

The Dividend Has Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Arthur J. Gallagher has been growing its earnings per share at 5.2% a year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

We Really Like Arthur J. Gallagher's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 4 warning signs for Arthur J. Gallagher that you should be aware of before investing. Is Arthur J. Gallagher not quite the opportunity you were looking for? Why not check out our selection of top 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.