The board of directors of
Donegal Group Inc.
) 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.
) increased its dividend by 43% to 20 cents per share. The board
of directors of
XL Group plc
) 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.
) 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
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).
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