Today is Wednesday, March 11, 2020, and this is your daily dividend safety update. Today we’re looking at Erie Indemnity (NASDAQ: ERIE) stock to see whether its 2.46% dividend is safe.
High-yield dividend stocks can be very useful to investors of all ages. Younger investors can use dividend reinvestment plans (DRIPs) to grow their portfolios exponentially over time, while retirees can use them to generate passive income.
In both cases, it’s preferable to buy dividend stocks with steady or rising dividends – and avoid those that cut their dividends.
Let’s look at the payout ratio, cash flow growth, and dividend history of Erie Indemnity to gauge the probability of a dividend cut in the next few years.
Payout Ratio (Dividends/Earnings)
Erie Indemnity has a payout ratio of 52.92%. That’s low enough for us! Payout ratio equals dividends per share divided by earnings per share. A low payout ratio indicates that the company has plenty of money to cover its dividend. We’d be more concerned if the ratio was closer to 100% (or over it).
Cash Flow Growth Year-Over-Year
Erie Indemnity has not grown its cash flow in the last year. That’s a bad omen for dividend investors. No cash flow means no dividend, so if cash flow isn’t growing, that’s a problem for us.
Dividend History & Recent Cuts
Erie Indemnity has not cut its dividend in the recent past. That’s a good sign. It’s not a guarantee that the company will never cut its dividend, but companies that have cut their dividends recently are generally more likely to cut them again.
The Takeaway
Erie Indemnity stock has failed 1 of our 3 dividend safety metrics. With that in mind, we believe a dividend cut is possible in the next few years.
Editor’s Note: We’ve been keeping an eye on some dividend stocks that could be better for your income portfolio than Erie Indemnity. These dividends are much bigger — and safer — than the paltry yields many investors settle for. Enter your email below to learn more.
