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Arthur J. Gallagher & Co.'s (NYSE:AJG) dividend will be increasing from last year's payment of the same period to $0.55 on 15th of September. This takes the annual payment to 1.0% of the current stock price, which unfortunately is below what the industry is paying.
See our latest analysis for Arthur J. Gallagher
Arthur J. Gallagher's Payment Has Solid Earnings Coverage
Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Arthur J. Gallagher's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
Over the next year, EPS is forecast to expand by 77.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 25% by next year, which is in a pretty sustainable range.
Arthur J. Gallagher Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the dividend has gone from $1.36 total annually to $2.20. This works out to be a compound annual growth rate (CAGR) of approximately 4.9% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Arthur J. Gallagher has impressed us by growing EPS at 10% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.
Arthur J. Gallagher Looks Like A Great Dividend Stock
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 4 warning signs for Arthur J. Gallagher that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.