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The board of Employers Holdings, Inc. (NYSE:EIG) has announced that it will be increasing its dividend on the 25th of May to US$0.26. The announced payment will take the dividend yield to 2.6%, which is in line with the average for the industry.
View our latest analysis for Employers Holdings
Employers Holdings' Earnings Easily Cover the Distributions
We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Employers Holdings' dividend was only 30% of earnings, however it was paying out 401% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.
Over the next year, EPS is forecast to fall by 27.5%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 49%, which is comfortable for the company to continue in the future.
Employers Holdings Has A Solid Track Record
The company has an extended history of paying stable dividends. The dividend has gone from US$0.24 in 2012 to the most recent annual payment of US$1.04. This means that it has been growing its distributions at 16% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.
Dividend Growth May Be Hard To Achieve
Investors could be attracted to the stock based on the quality of its payment history. Employers Holdings hasn't seen much change in its earnings per share over the last five years. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.
Our Thoughts On Employers Holdings' Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Employers Holdings is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for Employers Holdings (1 doesn't sit too well with us!) that you should be aware of before investing. 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.