Erie Indemnity Rewards Shareholders With Dividend Hike

The board of directors of Erie Indemnity Company (NASDAQ:ERIE) recently approved a 7.2% hike each in its quarterly dividend on Class A share and Class B share. The company will now reward shareholders with a dividend of 78.3 cents per share on each Class A share and $117.4 per share on each Class B share. The insurance broker increased the quarterly dividend from 73 cents per share (Class A share) and $109.50 (Class B share) paid on Oct 20, 2016.

Shares of Erie Indemnity have surpassed Zacks categorized Insurance Brokers industry, since its earnings release. The insurer broker’s stock gained 10.4% compared with 6% growth witnessed by the industry. Substantial improvement, both in the bottom line and top line, contributed to the outperformance. Also, a robust liquidity position backed by strong cash flow generation has helped the company to invest in strategic initiatives, which in turn, has accelerated its growth.

Coming back, based on the closing share price of $112.44 as of Dec 7, the increased dividend translates to a yield of 2.66%. The raised dividend will be paid on Jan 20, 2017.

The insurance broker remains committed to enhancing shareholder value. In addition, the company’s solid financial condition and robust operational performance have allowed it to make regular dividend payments. The dividend hike is indicative of the bullish sentiment and should further strengthen the company’s position, leading to success in both the near and long term.

We note that the increases in dividends are also backed by Erie Indemnity’s sturdy liquidity position. Notably, the company’s dividend payout ratio is 69.84%, which is much better than the industry dividend payout ratio of 26.76%.

Along with the dividend hike, the board decided to maintain the current management fee rate paid to Erie Indemnity Company by Erie Insurance Exchange at 25% for the period of Jan 1 through Dec 31, 2016. The action was based on the board’s review and subsequent inference about the relative financial conditions of Erie Insurance Exchange and Erie Indemnity Company.

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

Dividend hikes not only testify to the operational and financial strength of a company, but also make a stock attractive for yield-seeking investors. Recently, The Hanover Insurance Group, Inc. (NYSE:THG) increased its dividend by 9%. Last month, the board of directors of Assurant, Inc. (NYSE:AIZ) increased its dividend by 6%, while Everest Re Group, Ltd. (NYSE:RE) approved a 9% hike in its quarterly dividend.

Zacks’ Best Private Investment Ideas

In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time? Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>