The board of American Equity Investment Life Holding Company (NYSE:AEL) has announced that it will be increasing its dividend by 5.9% on the 13th of December to $0.36, up from last year’s comparable payment of $0.34. Despite this increase, the dividend yield of 0.9% is only a modest boost to shareholder returns.
Check out the opportunities and risks within the US insurance industry.
American Equity Investment Life Holding’s Dividend Is Well Covered By Earnings
The dividend yield is a little bit low, but the sustainability of the payments is also an important part of evaluating an income stock. However, American Equity Investment Life Holding’s earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.
Over the next year, EPS is forecast to fall by 55.2%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 5.7%, which is comfortable for the company to continue in the future.
American Equity Investment Life Holding Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2012, the annual payment back then was $0.12, compared to the most recent full-year payment of $0.34. This means that it has been growing its distributions at 11% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that American Equity Investment Life Holding has grown earnings per share at 39% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.
American Equity Investment Life Holding Looks Like A Great Dividend Stock
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The earnings easily cover the company’s distributions, and the company is generating plenty of cash. 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.
Investors generally tend to favor companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analyzing stock performance. Taking the debate a bit further, we’ve identified 1 warning sign for American Equity Investment Life Holding that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our Collection of strong dividend payers.
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