Hanover Insurance Group (NYSE:THG) Has Announced That It Will Be Increasing Its Dividend To $0.81

The board of The Hanover Insurance Group, Inc. (NYSE:THG) has announced that it will be paying its dividend of $0.81 on the 31st of March, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 2.3%, which is in line with the average for the industry.

See our latest analysis for Hanover Insurance Group

Hanover Insurance Group's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. The last payment made up 93% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Analysts expect a massive rise in earnings per share in the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

Hanover Insurance Group Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $1.20 in 2013 to the most recent total annual payment of $3.24. This means that it has been growing its distributions at 10% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Dividend Growth Is Doubtful

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. In the last five years, Hanover Insurance Group's earnings per share has shrunk at approximately 8.4% 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. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Our Thoughts On Hanover Insurance Group's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Hanover Insurance Group's payments are rock solid. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Hanover Insurance Group that investors should know about before committing capital to this stock. Is Hanover Insurance Group 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.