Universal Insurance Holdings (NYSE:UVE) Is Due To Pay A Dividend Of US$0.16

The board of Universal Insurance Holdings, Inc. (NYSE:UVE) has announced that it will pay a dividend of US$0.16 per share on the 9th of August. This means the annual payment is 5.9% of the current stock price, which is above the average for the industry.

View our latest analysis for Universal Insurance Holdings

Universal Insurance Holdings' Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend made up a very large portion of earnings and also represented 77% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

The next year is set to see EPS grow by 185.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 36%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2011, the first annual payment was US$0.40, compared to the most recent full-year payment of US$0.77. This implies that the company grew its distributions at a yearly rate of about 6.8% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Universal Insurance Holdings' earnings per share has shrunk at 24% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Universal Insurance Holdings' Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The track record isn't great, and the payments are a bit high to be considered sustainable. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Universal Insurance Holdings that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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