Employers Holdings, Inc. (NYSE:EIG) will pay a dividend of US$0.25 on the 15th of March. This means that the annual payment will be 2.5% of the current stock price, which is in line with the average for the industry.
See our latest analysis for Employers Holdings
Employers Holdings’ Payment Has Solid Earnings Coverage
Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Employers Holdings’ earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
If the trend of the last few years continues, EPS will grow by 5.5% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 27% by next year, which is in a pretty sustainable range.
Employers Holdings Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the first annual payment was US$0.24, compared to the most recent full-year payment of US$1.00. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year 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.
We Could See Employers Holdings’ Dividend Growing
Investors could be attracted to the stock based on the quality of its payment history. It’s encouraging to see Employers Holdings has been growing its earnings per share at 5.5% a year over the past five years. Employers Holdings definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
In Summary
Overall, we don’t think this company makes a great dividend stock, even though the dividend wasn’t cut this year. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we’ve identified 1 warning sign for Employers Holdings that you should be aware of before investing. 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.
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