OUTsurance Group's (JSE:OUT) Shareholders Will Receive A Bigger Dividend Than Last Year

OUTsurance Group Limited (JSE:OUT) has announced that it will be increasing its dividend from last year's comparable payment on the 20th of October to ZAR1.82. This takes the annual payment to 3.5% of the current stock price, which is about average for the industry.

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OUTsurance Group's Future Dividend Projections Appear Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before this announcement, OUTsurance Group was paying out 78% of earnings, but a comparatively small 72% of free cash flows. 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.

Over the next year, EPS is forecast to expand by 44.3%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 64% which would be quite comfortable going to take the dividend forward.

See our latest analysis for OUTsurance Group

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the dividend has gone from ZAR1.14 total annually to ZAR2.71. This means that it has been growing its distributions at 9.0% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

OUTsurance Group's Dividend Might Lack Growth

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 has impressed us by growing EPS at 26% per year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which OUTsurance Group hasn't been doing.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think OUTsurance Group's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for OUTsurance Group that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.