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E-L Financial Corporation Limited's (TSE:ELF) investors are due to receive a payment of CA$2.50 per share on 15th of July. Based on this payment, the dividend yield on the company's stock will be 14%, which is an attractive boost to shareholder returns.
See our latest analysis for E-L Financial
E-L Financial Doesn't Earn Enough To Cover Its Payments
A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, E-L Financial was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.
If the company can't turn things around, EPS could fall by 5.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 119%, which could put the dividend in jeopardy if the company's earnings don't improve.
E-L Financial Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the first annual payment was CA$0.50, compared to the most recent full-year payment of CA$10.00. This works out to be a compound annual growth rate (CAGR) of approximately 35% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
Dividend Growth Is Doubtful
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. Over the past five years, it looks as though E-L Financial's EPS has declined at around 5.5% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.
Our Thoughts On E-L Financial's Dividend
Overall, we think E-L Financial is a solid choice as a dividend stock, even though the dividend wasn't raised this year. While the payments look sustainable for now, earnings have been shrinking so the dividend could come under pressure in the future. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for E-L Financial that you should be aware of before investing. Is E-L Financial not quite the opportunity you were looking for? Why not check out our selection of top 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.