The board of Essent Group Ltd. (NYSE:ESNT) has announced that it will be paying its dividend of $0.23 on the 12th of December, an increased payment from last year's comparable dividend. Even though the dividend went up, the yield is still quite low at only 2.4%.
Essent Group's Payment Expected To Have Solid Earnings Coverage
If it is predictable over a long period, even low dividend yields can be attractive.
Essent Group has a short history of paying out dividends, with its current track record at only 3 years. Based on its last earnings report however, the payout ratio is at a comfortable 10%, meaning that Essent Group may be able to sustain this dividend for future years if it continues on this earnings trend.
EPS is set to fall by 26.5% over the next 3 years. Fortunately, analysts forecast the future payout ratio to be 14% over the same time horizon, which is in the range that makes us comfortable with the sustainability of the dividend.
Essent Group Doesn't Have A Long Payment History
The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The dividend has gone from an annual total of $0.60 in 2019 to the most recent total annual payment of $0.92. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Essent Group has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. Essent Group has impressed us by growing EPS at 21% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.
We Really Like Essent Group's Dividend
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. Taking this all into consideration, this looks like it could be a good dividend opportunity.
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. To that end, Essent Group has 3 warning signs (and 1 which is concerning) we think you should know about. 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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