OUTsurance Group (JSE:OUT) Is Paying Out A Larger Dividend Than Last Year

OUTsurance Group Limited (JSE:OUT) will increase its dividend from last year's comparable payment on the 21st of October to ZAR1.13. This makes the dividend yield about the same as the industry average at 3.8%.

Check out our latest analysis for OUTsurance Group

OUTsurance Group's Payment Could Potentially Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last dividend, OUTsurance Group is earning enough to cover the payment, but then it makes up 108% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS is forecast to expand by 33.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 49%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was ZAR1.01, compared to the most recent full-year payment of ZAR2.14. This works out to be a compound annual growth rate (CAGR) of approximately 7.8% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. OUTsurance Group might have put its house in order since then, but we remain cautious.

OUTsurance Group May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. OUTsurance Group hasn't seen much change in its earnings per share over the last five years.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think OUTsurance Group's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for OUTsurance 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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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.