Diamond Hill Investment Group's (NASDAQ:DHIL) Dividend Will Be $1.50

The board of Diamond Hill Investment Group, Inc. (NASDAQ:DHIL) has announced that it will pay a dividend on the 12th of September, with investors receiving $1.50 per share. This means the annual payment is 4.5% of the current stock price, which is above the average for the industry.

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Diamond Hill Investment Group's Projected Earnings Seem Likely To Cover Future Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Diamond Hill Investment Group's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS could expand by 8.7% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 37%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for Diamond Hill Investment Group

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the dividend has gone from $4.00 total annually to $6.00. This works out to be a compound annual growth rate (CAGR) of approximately 4.1% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

We Could See Diamond Hill Investment Group's Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Diamond Hill Investment Group has impressed us by growing EPS at 8.7% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Diamond Hill Investment Group's prospects of growing its dividend payments in the future.

Our Thoughts On Diamond Hill Investment Group's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, Diamond Hill Investment Group has 3 warning signs (and 2 which are a bit unpleasant) we think you should know about. Is Diamond Hill Investment Group 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.