Last update on 2024-06-27

Safety Insurance Group (SAFT) - Dividend Analysis (Final Score: 6/8)

Discover the dividend performance of Safety Insurance Group (SAFT) with an 8-criteria analysis scoring 6/8, indicating reliability and potential risks.

Short Analysis - Dividend Score: 6

We're running Safety Insurance Group (SAFT) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis of Safety Insurance Group (SAFT) against an 8-criteria scoring system results in a score of 6. SAFT has a strong dividend yield of 4.7375%, higher than the industry average of 2.47%. The average annual growth rate of dividends is 12.76%, surpassing the 5% target, but there have been years of zero growth. The payout ratio is comfortably low at 36.08%, below the 65% threshold. Recent years show concerning dividend coverage by earnings, with 2023 seeing zero earnings but continued dividend payouts. Dividend coverage by cash flow has seen fluctuations, but the recent trend is positive. SAFT has consistently increased dividends from $0.34 in 2003 to $3.60 in 2023, ensuring no decreases over 20%. While SAFT hasn't hit the 25-year mark, it has consistently paid dividends since 2003. Share repurchases have been strategically significant over the years, particularly from 2009 to 2023, enhancing shareholder value.

Insights for Value Investors Seeking Stable Income

Based on the given dividend analysis, Safety Insurance Group (SAFT) appears to be a strong option for dividend-focused investors. The company has a significant yield and consistent dividend growth over 20 years, alongside a low payout ratio, indicating sustainability. However, potential investors should be cautious about the recent years' inadequate dividend coverage by earnings and periods of zero growth. Despite this, the positive trend in cash flow coverage and stable repurchase actions accentuates its commitment to returning value to shareholders. Keep a watchful eye on the company's financial health but consider it a worthwhile investment for steady income gains.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is the ratio of a company's annual dividend compared to its share price.

Safety Insurance Group (SAFT) has had a historically volatile dividend yield but is currently at 4.7375%, significantly higher than the industry average of 2.47%. This indicates that SAFT provides a better income return compared to its peers. However, examining the trends, SAFT's yield has increased from 1.9871% in 2003 to 4.7375% in 2023, showcasing growth in dividend payments relative to its stock price. This consistency is favorable, but potential investors should also consider stock price movements and overall financial health.

Average annual Growth Rate higher than 5% in the last 20 years?

Examine the historical growth rate of dividends and its consistency above a threshold such as 5% over a period e.g. 20 years which suggests a reliable income stream for investors.

An analysis of Safety Insurance Group (SAFT)'s dividend growth rate over the last 20 years reveals a varied history. The average Dividend Ratio, as observed, is approximately 12.76%, which is significantly higher than the 5% threshold. However, the dividend growth rate has fluctuated with several noteworthy peaks in certain years such as 2004 (29.41%) and 2007 (51.16%), but has shown periods of stagnation or no growth in years like 2003, 2009, 2016, and several others recent years. This pattern indicates both opportunities and potential risks. While the average growth suggests a robust financial health and potential for sustained income, the inconsistencies, particularly the years with 0% growth rate can be disconcerting. Hence, although the trend is generally positive, the substantial year-on-year variances and periods of inactivity in dividend growth introduce elements of uncertainty for prospective investors.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio indicates what percentage of a company’s earnings is returned to shareholders as dividends. A lower ratio suggests a more sustainable dividend.

The average payout ratio for Safety Insurance Group (SAFT) over the past 20 years is 36.08%. This figure is considerably below the 65% threshold, indicating a strong ability to sustain dividends. While there are some years like 2011 and 2021 where the ratios spiked to over 100%, these appear to be anomalies. Generally, having a lower and more consistent payout ratio is positive, suggesting that the company's earnings sufficiently cover dividends, thereby reducing the risk of dividend cuts in future financial downturns.

Dividends Well Covered by Earnings?

Dividends being well covered by earnings means the company generates enough profit to pay its dividends without straining its finances.

Reviewing Safety Insurance Group (SAFT) from 2003 to 2023, the dividend coverage by earnings per share (EPS) displays variability. In ten out of the twenty-one years reviewed, the dividend coverage ratio was below 1, indicating dividends were not fully covered by earnings in these years, with especially alarming coverage in 2011 and 2022, where earnings couldn't fully cover dividends, and notably in 2015 where earnings were in negative territory. On the flip side, there were years where coverage was comfortable such as 2003, 2004, 2005, and in particular, 2019 which had a strong coverage ratio of 1.87. More recently, however, SAFT's ability to cover dividends has deteriorated, alongside significant zero earnings in 2023 coupled with continued dividend payouts, raising questions about sustainable dividend financing. This trend, concerning its inconsistent coverage over the deadline and its complete breakdown in recent years, flags financial caution and suggests that SAFT's dividend policy could be under strain or reliant on reserves rather than current earnings.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow is an important criterion as it indicates the company's ability to generate sufficient cash flow to cover its dividend payments. This is a key indicator of dividend sustainability and financial health.

Over the observed period, Safety Insurance Group (SAFT) had varying degrees of success in covering its dividend payouts with free cash flow. Years like 2008 show considerable negative coverage (-0.63), indicating that the company was not generating enough cash flow to cover its dividends. However, other years such as 2015 and 2020 exhibit high coverage ratios exceeding 1.0. This fluctuation could be concerning for investors seeking consistent, reliable dividends. On the whole, however, the recent trend is positive with the latest year (2023) having a healthy coverage ratio of 1.06. Thus, while there have been periods of underperformance, the overall trend shows improved coverage, suggesting a relative stability in dividend payments moving forward.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends where dividend per share did not decrease by more than 20% over 20 years is crucial for income investors.

Over the past 20 years, Safety Insurance Group (SAFT) has demonstrated remarkable stability in its dividend payments. The dividend per share has consistently increased from $0.34 in 2003 to $3.60 in 2023. There has not been any year where the dividends decreased by 20% or more. This trend is excellent for income-seeking investors, as it ensures a reliable and steadily growing income stream from their investment.

Dividends Paid for Over 25 Years?

Companies paying dividends for over 25 years demonstrate financial stability and a commitment to returning value to shareholders. This can imply strong cash flows and prudent management.

Safety Insurance Group (SAFT) has consistently paid dividends since 2003, marking two decades of sustained dividend payments. While they haven’t met the 25-year mark yet, the trend shows a commitment to consistent payouts. Starting from $0.34 per share in 2003, the dividends have seen a steady increase, reaching $3.6 per share by 2023. This upward trend is a positive indication of SAFT’s strong financial health and shareholder-focused management.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases are important as they reduce the number of shares outstanding, thereby increasing the ownership proportion and potential earnings per share for existing shareholders.

Safety Insurance Group (SAFT) has shown a trend of repurchasing shares in several key years over the last two decades, with marked reductions seen in 2009, 2010, 2014, 2015, 2019, 2020, 2021, 2022, and 2023. However, it is notable that 2023 shows 0 shares, indicating perhaps the completion of a significant buyback. With an average repurchase rate of -5.233 over 20 years, SAFT appears to have a strategic focus on returning value to shareholders through consistent share buybacks. This negative average denotes a buyback exceeding issuance, which is historically favorable for stock value appreciation. However, it's essential to examine the specifics of financial conditions and strategic motives behind these repurchases for a holistic understanding.