The board of PSC Insurance Group Limited (ASX:PSI) has announced that it will be paying its dividend of A$0.083 on the 11th of October, an increased payment from last year's comparable dividend. This makes the dividend yield about the same as the industry average at 2.8%.

See our latest analysis for PSC Insurance Group

PSC Insurance Group's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, PSC Insurance Group's dividend made up quite a large proportion of earnings but only 61% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS is forecast to expand by 39.4%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 71% which would be quite comfortable going to take the dividend forward. historic-dividend

PSC Insurance Group Doesn't Have A Long Payment History

It is great to see that PSC Insurance Group has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2016, the dividend has gone from A$0.024 total annually to A$0.135. This works out to be a compound annual growth rate (CAGR) of approximately 28% a year over that time. PSC Insurance 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.

We Could See PSC Insurance Group's Dividend Growing

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that PSC Insurance Group has been growing its earnings per share at 6.2% a year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.



In Summary

In summary, while it's always good to see the dividend being raised, we don't think PSC Insurance Group's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. 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. Earnings growth generally bodes well for the future value of company dividend payments. See if the 6 PSC Insurance Group analysts we track are forecasting continued growth with our freereport on analyst estimates for the company. 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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