The board of AMERISAFE, Inc. (NASDAQ:AMSF) has announced that it will pay a dividend on the 21st of March, with investors receiving $0.39 per share. This makes the dividend yield 8.9%, which is above the industry average.

See our latest analysis for AMERISAFE

AMERISAFE's Future Dividends May Potentially Be At Risk

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last dividend, AMERISAFE is earning enough to cover the payment, but then it makes up 527% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

EPS is set to fall by 41.9% over the next 12 months. If the dividend continues along the path it has been on recently, the company could be paying out more than double what it is earning, which is definitely a bit high to be sustainable going forward.

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. The annual payment during the last 10 years was $0.48 in 2015, and the most recent fiscal year payment was $4.56. This works out to be a compound annual growth rate (CAGR) of approximately 25% a year over that time. AMERISAFE has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth May Be Hard To Come By

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. AMERISAFE has seen earnings per share falling at 9.6% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

AMERISAFE's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think AMERISAFE will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for AMERISAFE (of which 1 is potentially serious!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.