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How safe is the Direct Line Insurance dividend payment?

Michael Green

Direct Line Insurance (LON:DLG) is a large cap Property & Casualty Insurance operator.

For the fiscal year ended 31 December 2019, Direct Line Insurance Group PLC revenues decreased 4% to £3.28B. The group pays out an attractive rolling dividend yield however of 8.15%.

I'd like to know how safe Direct Line Insurance's dividend is. Dividend cover (earnings per share divided by dividend per share) of two times or above is strong. Anything below one and a half times suggests we need to look a little closer.


Computing Direct Line Insurance's dividend cover ratio

Poor dividend cover means that a small decline in earnings could consign your dividend payment to the scrap heap. It could also mean that the company is forgoing profitable investment opportunities that could generate future earnings growth. With that in mind, let’s take a look at Direct Line Insurance dividend cover.

We can get all the information we need to see if Direct Line Insurance has an adequate level of dividend cover from the group’s StockReport. The group’s trailing twelve month (TTM) EPS is 0.30 and its TTM dividend per share is 0.22

Divide the former by the latter and we get a trailing twelve-month dividend cover for Direct Line Insurance of 1.35. This is below the 1.5 times cover limit that marks the point at which we should do some further digging on dividend sustainability and safety. One starting point to do that would be to take a look at its StockReport here.

Income investing: what you need to know

For many investors, dividends are a vital part of their long-term strategy. That's why we have created a variety of income-focused stock screens, such as the Best Dividends Screen, to identify promising candidates for income portfolios. Take a look and see if any of the qualifying stocks might be worthy of further research.

As for Direct Line Insurance (LON:DLG), you can find a wealth of financial data on the group's StockReport, including information on the group's past and forecast dividend payments. If you’d like to discover more about dividend investing, you can read our free ebook: How to Make Money in Dividend Stocks.