Donegal Group Hikes Dividend

The board of directors of Donegal Group Inc. (DGICA) (DGICB) approved a dividend hike on both Class A and Class B shares. While a 3.1% dividend increase was approved for Class A shares, a 0.9% hike was sanctioned for Class B shares.

Consequently, the company will now pay quarterly dividend of 13.15 cents per Class A share and 11.60 cents per Class A share.

The newly increased dividends will be paid on May 15, 2014 to shareholders of record as of May 1, 2014. Based on the closing share price of $15.00 on April 17, the increased dividend implies a yield of 3.5%. Donegal Group has a solid track record of increasing dividend every year. Its dividend has grown at a 5-year CAGR of about 4.6%. The last dividend hike had been affected in April last year with the board approving a 4.1% increase in Class A and 4.5% increase in Class B shares.

Based on 20.4 million Class A shares outstanding at the end of 2013, Donegal Group will have to dish out around $2.7 million as quarterly dividend. Its liquidity position is sound enough to support the payout. While cash balance improved 39% over 2012, cash from operations nearly doubled. Retained earnings stood solid at nearly $223 million (up 6.3% over 2012).

Donegal Group does not stand alone in the league of dividend increases. Several insurers have approved dividend hikes in an intention to boost their shareholders’ value. Recently, the board of directors of AmTrust Financial Services, Inc. (AFSI) increased its dividend by 43% to 20 cents per share. The board of directors of XL Group plc (XL) called for a 14.3% hike in its quarterly dividend to 16 cents per share. Furthermore, the board of directors of Infinity Property and Casualty Corp. (IPCC) approved a 20% increase in its quarterly cash dividend to 36 cents per share. Concerted efforts on the part of the company to share more profit with shareholders not only retain investor confidence, but also help attract potential investors to the stock.

Besides dividend hikes, Donegal Group also repurchases shares, which in turn lowers the share count and boosts earnings per share – another avenue to enhance shareholders’ value. As such, last July, the board of directors authorized the company to buy back 0.5 million of its Class A shares.

There was no earnings momentum for Donegal Group over the last 60 days. With the news of increase in dividend, we expect analysts to raise their estimates exerting upward pressure on the Zacks Rank. Donegal Group presently carries a Zacks Rank #3 (Hold).

Read the Full Research Report on XL
Read the Full Research Report on AFSI
Read the Full Research Report on DGICA
Read the Full Research Report on DGICB
Read the Full Research Report on IPCC


Zacks Investment Research