Erie Indemnity Boosts Shareholders' Value With Dividend Hike

In its concerted effort to share more profits with shareholders, the board of directors of Erie Indemnity Company (NASDAQ:ERIE) approved a 7.3% hike in quarterly dividend. The company will now pay a quarterly dividend of 84 cents per Class A share compared with 78.25 cents paid on Oct 20. Shareholders of record as of Jan 8 will be rewarded with the meatier dividend in their pockets on Jan 23, 2018.

The board had earlier also raised the dividend for Class B shares to $126.00 from $117.34 per share.

Following the 7.3% increase, the annualized rate for Class A shares scales to $3.36 per share. Based on the closing share price of $119.25 as of Dec 8, the hiked payout implies a dividend yield of 2.8, better than the industry average of 1.6.

Erie Indemnity has a solid track of raising its annual dividend. The metric has witnessed a five-year CAGR of 7.2%. The company has been paying dividends to its shareholders since 1933.

Erie Indemnity’s effective capital deployment is well-supported by a solid cash flow, which in turn is driven by a sustained robust operational performance. The company has delivered positive surprises in two of the last four quarters and has disbursed a payout amount of $109 million in the first three quarters of 2017, banking on continued growth and profitability.

Shares of Erie Indemnity have gained 6.1% in a year, underperforming the industry’s increase of 21.2%. We believe the company’s initiative to create value for shareholders will help drive up the shares.

Shareholder-friendly moves like sharing more profit via dividends and share repurchases seems a well-accepted strategy among insurers to fortify investors’ confidence in their stock. Last month, the board members of Assurant Inc. (NYSE:AIZ) had approved a 6% hike in its dividend while Sun Life Financial Inc. (TO:SLF) raised the same by 5%. RLI Corp. (NYSE:RLI) has announced a special dividend of $1.75.

Erie Indemnity carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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