The board of Safety Insurance Group, Inc. (NASDAQ:SAFT) has announced that it will pay a dividend of $0.90 per share on the 13th of December. The dividend yield will be 4.2% based on this payment which is still above the industry average.

View our latest analysis for Safety Insurance Group

Safety Insurance Group's Future Dividend Projections Appear Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Safety Insurance Group's was paying out quite a large proportion of earnings and 82% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

Looking forward, could fall by 3.1% if the company can't turn things around from the last few years. If recent patterns in the dividend continue, we could see the payout ratio reaching 77% in the next 12 months which is on the higher end of the range we would say is sustainable.

Safety Insurance Group Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $2.40 in 2014, and the most recent fiscal year payment was $3.60. This works out to be a compound annual growth rate (CAGR) of approximately 4.1% a year over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. It's not great to see that Safety Insurance Group's earnings per share has fallen at approximately 3.1% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

Our Thoughts On Safety Insurance Group's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Safety Insurance Group's payments, as there could be some issues with sustaining them into the future. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Safety Insurance Group has been making. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Safety Insurance Group that investors should take into consideration. Is Safety Insurance Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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