Brown & Brown’s Dividend History and Safety

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Some of the world’s best investors stick to dividend portfolios. They know that a steady stream of income is a top wealth building strategy. And finding the best deals is vital. So today, we’re going to review another one of the best dividend stocks around. Let’s take a look at Brown & Brown’s dividend history and safety…

Business Overview and Highlights

Brown & Brown (NYSE: BRO) is a $8.9 billion business based out of Daytona Beach, FL. Brown & Brown is a provider of insurance and reinsurance products and services to general businesses, corporate, governmental, institutional, professional, and individual clients. The company is currently ranked the sixth largest insurance organization in the country, and eighth largest in the world. It is also a member of the S&P 400. Brown & Brown employs 9,600 people. Last year the insurance provider pulled in $2 billion in sales and that works out to $210,000 per employee.

The company operates within the financial sector and maintains a solid credit rating (BBB-) from the S&P. This allows Brown & Brown to issue cheap debt to expand operations and finance other initiatives.

On April 22, Brown & Brown declared a dividend of $0.08 per share made payable May 17 to shareholders of record on May 8. Brown & Brown has paid dividends since 1990 and has increased its dividend for 19 successive years.

10-Year Dividend History

The company paid investors $0.15 per share a decade ago. Over the last 10 years, the dividend has climbed to $0.31. That’s a 105% increase and you can see the annual changes below…

The compound annual growth is 7.4% over 10 years… but over the last year, the dividend climbed 10.7%. The increase in dividend growth is a good sign. Brown & Brown might work out as a great income investment. Let’s take a look at the yield…

Current Yield vs. 10-Year Average

Brown & Brown’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital, and we’ll look at that soon.

The dividend yield comes in at 1.02% and that’s below the 10-year average of 1.43%. The chart below shows the dividend yield over the last 10 years…

BRO Dividend Yield

The lower yield shows that investors have bid up the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.

There are dividend stocks with higher yields. You might want to shop for better dividend stocks in the current market.

Improved Dividend Safety Check

Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So, a payout ratio of 60% would mean that for every $1 Brown & Brown earns, it pays investors $0.60.

The payout ratio is a good indicator of dividend safety, but accountants can manipulate net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.

Here’s Brown & Brown payout ratio based on free cash flow over the last 10 years…

BRO Payout Ratio

The ratio is volatile over the last 10 years and the trend is down. The last reported year shows a payout ratio of 16%. This gives wiggle room for Brown & Brown’s board of directors to raise the dividend.

If you’re interested in seeing more dividend research, please comment below. You can also check out our free DRIP calculator. With it, you can uncover the power of dividend reinvestment growth.

Good investing,

Robert