American Financial Group's (NYSE:AFG) Dividend Will Be Increased To $0.63

American Financial Group, Inc.'s (NYSE:AFG) dividend will be increasing from last year's payment of the same period to $0.63 on 25th of October. Despite this raise, the dividend yield of 1.7% is only a modest boost to shareholder returns.

View our latest analysis for American Financial Group

American Financial Group Is Paying Out More Than It Is Earning

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, American Financial Group's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to fall by 4.6%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 177%, which could put the dividend under pressure if earnings don't start to improve.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of $0.70 in 2012 to the most recent total annual payment of $2.24. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

American Financial Group Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. American Financial Group has impressed us by growing EPS at 5.9% per year over the past five years. American Financial Group definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for American Financial Group that investors need to be conscious of moving forward. Is American Financial Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.

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