Mercury General Corporation's (NYSE:MCY) investors are due to receive a payment of $0.3175 per share on 27th of March. This makes the dividend yield 2.3%, which will augment investor returns quite nicely.

See our latest analysis for Mercury General

Mercury General's Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, Mercury General's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to fall by 40.5%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 24%, which is comfortable for the company to continue in the future.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from $2.46 total annually to $1.27. The dividend has shrunk at around 6.4% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Mercury General has impressed us by growing EPS at 7.9% per year over the past five years. Mercury General definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, a consistent dividend is a good thing, and we think that Mercury General has the ability to continue this into the future. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Mercury General you should be aware of, and 1 of them can't be ignored. Is Mercury General not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.