The board of Sabre Insurance Group plc (LON:SBRE) has announced that it will be paying its dividend of ￡0.081 on the 5th of June, an increased payment from last year's comparable dividend. Even though the dividend went up, the yield is still quite low at only 3.0%.

See our latest analysis for Sabre Insurance Group

Sabre Insurance Group's Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Sabre Insurance Group's dividend made up quite a large proportion of earnings but only 52% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Over the next year, EPS is forecast to expand by 130.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 29%, which is in the range that makes us comfortable with the sustainability of the dividend.

Sabre Insurance Group's Dividend Has Lacked Consistency

Sabre Insurance Group has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of ￡0.144 in 2018 to the most recent total annual payment of ￡0.051. The dividend has fallen 65% over that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Earnings per share has been sinking by 18% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. 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.

Our Thoughts On Sabre Insurance Group's Dividend

Overall, we always like to see the dividend being raised, but we don't think Sabre Insurance Group will make a great income stock. 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. Overall, we don't think this company has the makings of a good income stock.