Stock Analysis

Hanover Insurance Group's (NYSE:THG) Shareholders Will Receive A Bigger Dividend Than Last Year

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NYSE:THG
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The board of The Hanover Insurance Group, Inc. (NYSE:THG) has announced that the dividend on 29th of December will be increased to $0.85, which will be 4.9% higher than last year's payment of $0.81 which covered the same period. This makes the dividend yield 2.6%, which is above the industry average.

View our latest analysis for Hanover Insurance Group

Hanover Insurance Group's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. While Hanover Insurance Group is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

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 21%, so there isn't too much pressure on the dividend.

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NYSE:THG Historic Dividend December 8th 2023

Hanover Insurance Group Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the annual payment back then was $1.32, compared to the most recent full-year payment of $3.24. This implies that the company grew its distributions at a yearly rate of about 9.4% over that duration. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend Has Limited Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Hanover Insurance Group's EPS has fallen by approximately 14% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Hanover Insurance Group will make a great income stock. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Hanover Insurance Group that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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