The board of James River Group Holdings, Ltd. (NASDAQ:JRVR) has announced that it will pay a dividend of US$0.30 per share on the 30th of June. The dividend yield will be 3.4% based on this payment which is still above the industry average.
James River Group Holdings’ Distributions May Be Difficult To Sustain
If the payments aren’t sustainable, a high yield for a few years won’t matter that much. Even though James River Group Holdings is not generating a profit, it is still paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.
Analysts expect the EPS to grow by 84.3% over the next 12 months. While it is good to see income moving in the right direction, it still looks like the company won’t achieve profitability. Unless this can be done in short order, the dividend might be difficult to sustain.
James River Group Holdings’ Dividend Has Lacked Consistency
James River Group Holdings has been paying dividends for a while, but the track record isn’t stellar. If the company cuts once, it definitely isn’t argument against the possibility of it cutting in the future. The first annual payment during the last 6 years was US$0.64 in 2015, and the most recent fiscal year payment was US$1.20. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
Dividend Growth Potential Is Shaky
With a relatively unstable dividend, it’s even more important to see if earnings per share is growing. James River Group Holdings’ earnings per share has shrunk at 33% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.
The company has also been raising capital by issuing stock equal to 22% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus – perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
James River Group Holdings’ Dividend Doesn’t Look Great
Overall, while some might be pleased that the dividend wasn’t cut, we think this may help James River Group Holdings make more consistent payments in the future. The company isn’t making enough to be paying as much as it is, and the other factors don’t look particularly promising either. Overall, the dividend is not reliable enough to make this a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We’ve spotted 4 warning signs for James River Group Holdings (of which 1 makes us a bit uncomfortable!) you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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