Universal Insurance Holdings, Inc.’s (NYSE:UVE) investors are due to receive a payment of US$0.16 per share on 20th of May. The dividend yield will be 6.2% based on this payment which is still above the industry average.
View our latest analysis for Universal Insurance Holdings
Universal Insurance Holdings’ Earnings Easily Cover the Distributions
A big dividend yield for a few years doesn’t mean much if it can’t be sustained. Based on the last payment, Universal Insurance Holdings’ profits didn’t cover the dividend, but the company was generating enough cash instead. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don’t think there is much reason to worry.
The next year is set to see EPS grow by 137.2%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 52% which brings it into quite a comfortable range.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from US$0.32 to US$0.77. This implies that the company grew its distributions at a yearly rate of about 9.2% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.
Dividend Growth Potential Is Shaky
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Universal Insurance Holdings’ EPS has fallen by approximately 26% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
Universal Insurance Holdings’ Dividend Doesn’t Look Sustainable
Overall, we don’t think this company makes a great dividend stock, even though the dividend wasn’t cut this year. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don’t think Universal Insurance Holdings is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we’ve identified 2 warning signs for Universal Insurance Holdings 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.