Universal Insurance Holdings, Inc. (NYSE:UVE) will pay a dividend of US$0.16 on the 21st of May. This makes the dividend yield 5.4{98cae0078f524eff3ab8ec32cf55b261677ef6c8a6ed6e94d92a4234b93f46b6}, which will augment investor returns quite nicely.

Check out our latest analysis for Universal Insurance Holdings

Universal Insurance Holdings’ Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn’t mean much if it can’t be sustained. The last dividend made up a very large portion of earnings and also represented 77{98cae0078f524eff3ab8ec32cf55b261677ef6c8a6ed6e94d92a4234b93f46b6} of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.

Over the next year, EPS is forecast to expand by 178.9{98cae0078f524eff3ab8ec32cf55b261677ef6c8a6ed6e94d92a4234b93f46b6}. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 37{98cae0078f524eff3ab8ec32cf55b261677ef6c8a6ed6e94d92a4234b93f46b6} which would be quite comfortable going to take the dividend forward.

NYSE:UVE Historic Dividend May 12th 2021

Dividend Volatility

The company’s dividend history has been marked by instability, with at least 1 cut in the last 10 years. The first annual payment during the last 10 years was US$0.40 in 2011, and the most recent fiscal year payment was US$0.77. This works out to be a compound annual growth rate (CAGR) of approximately 6.8{98cae0078f524eff3ab8ec32cf55b261677ef6c8a6ed6e94d92a4234b93f46b6} a year over that time. It’s good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Universal Insurance Holdings might have put its house in order since then, but we remain cautious.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it’s even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Universal Insurance Holdings’ EPS has declined at around 24{98cae0078f524eff3ab8ec32cf55b261677ef6c8a6ed6e94d92a4234b93f46b6} a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn’t be feeling too comfortable.

Universal Insurance Holdings’ Dividend Doesn’t Look Sustainable

Overall, it’s nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. We don’t think Universal Insurance Holdings is a great stock to add to your portfolio if income is your focus.

It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we’ve identified 1 warning sign for Universal Insurance Holdings that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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This article by Simply Wall St is general in nature. 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.
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