Fidelis Insurance Holdings Limited (NYSE:FIHL) will increase its dividend on the 26th of September to $0.15, which is 50% higher than last year's payment from the same period of $0.10. This makes the dividend yield 2.4%, which is above the industry average.
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While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Fidelis Insurance Holdings is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.
EPS is forecast to rise very quickly over the next 12 months. Assuming the dividend continues along recent trends, we could see the payout ratio reach 222%, which is on the unsustainable side.
View our latest analysis for Fidelis Insurance Holdings
It's not possible for us to make a backward looking judgement just based on a short payment history. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.
The company's investors will be pleased to have been receiving dividend income for some time. Fidelis Insurance Holdings has impressed us by growing EPS at 8.0% per year over the past five years. Even though the company isn't making a profit, strong earnings growth could turn that around in the near future. As long as the company becomes profitable soon, it is on a trajectory that could see it being a solid dividend payer.
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular 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 Fidelis Insurance Holdings that you should be aware of before investing. Is Fidelis Insurance Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.