Arthur J. Gallagher & Co.'s (NYSE:AJG) periodic dividend will be increasing on the 21st of March to $0.65, with investors receiving 8.3% more than last year's $0.60. Although the dividend is now higher, the yield is only 0.8%, which is below the industry average.

Check out our latest analysis for Arthur J. Gallagher

Arthur J. Gallagher's Projected Earnings Seem Likely To Cover Future Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Arthur J. Gallagher was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

The next year is set to see EPS grow by 57.2%. If the dividend continues on this path, the payout ratio could be 28% by next year, which we think can be pretty sustainable going forward.

Arthur J. Gallagher Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of $1.44 in 2015 to the most recent total annual payment of $2.40. This implies that the company grew its distributions at a yearly rate of about 5.2% over that duration. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Arthur J. Gallagher has seen EPS rising for the last five years, at 10% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

We should note that Arthur J. Gallagher has issued stock equal to 15% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Arthur J. Gallagher Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Arthur J. Gallagher is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Arthur J. Gallagher that investors should know about before committing capital to this stock. Is Arthur J. Gallagher not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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