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The board of directors of Erie Indemnity Company (ERIE - Snapshot Report) approved a dividend hike on both Class A and Class B shares. While a 7.2% dividend hike was approved for Class A shares, a 3.2% hike was approved for Class B shares.

The company will now pay quarterly dividend of 63.5 cents per Class A share, up from 59.25 cents paid on Jul 2013.
The newly increased dividend will be paid on Jan 22, 2014 to shareholders of record as of Jan 7, 2013. Based on the closing share price of $70.28 on Dec 4, the increased dividend implies a yield of 3.6%. The current dividend yield of the company betters the industry average of 1.85%. Erie Indemnity has a solid track record of increasing dividend every year. Its dividend has grown at a 5-year CAGR of about 7.3%. The last dividend hike had been affected in November last year with the board approving a 7.2% increase.

Based on 52.9 million shares outstanding at the end of third quarter of 2013, the company will have to dish out around $33.6 million as quarterly dividend. Its liquidity position is sound enough to support the pay out. The company also paid a special dividend of $2 per share last November. Erie Indemnity has paid dividends regularly since 1933.

Several insurers have sought approval for dividend hikes, in an intention to boost shareholders’ value. Last month, the board of directors of property and casualty Montpelier Re Holdings Ltd. (MRH - Analyst Report) increased its dividend by 9% to 12.50 cents per share. Yet another life insurer, American Equity Investment Life Holding Company (AEL - Snapshot Report) approved a 20% increase in its annual cash dividend to 18 cents.  The board of directors of property and casualty insurer ACE Limited (ACE - Analyst Report) intends to increase its quarterly dividend by 24% to 63 cents per share.

There was no earnings momentum for Erie Indemnity over the last 7 days. With the news of increase in dividend, we expect analysts to raise their estimates exerting upward pressure on the Zacks Rank. Erie Indemnity presently carries a Zacks Rank #4 (Sell).

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