Question-and-Answer Session
Thank you. The floor is now open for questions. [Operator Instructions]. Your first question is coming from Keith Walsh of Citi. Please go ahead.
Keith Walsh - Citigroup
Hey, good morning everybody.
J. Patrick Gallagher, Jr. - Chairman of the Board, President and Chief Executive Office
Good morning Keith.
Keith Walsh - Citigroup
First question is for Doug on brokerage. As your EBITDA margin up under 10 bits [ph] but gross margin actually flat. Maybe if you can give us some color on why depreciation and amortization rate increased year-over-year and then I have got a follow-up for Pat?
Douglas K. Howell - Corporate Vice President and Chief Financial Officer
While amortization is going to increase year-over-year because of the deals that we're putting on, if you remember we're amortizing about 60% to 70% of the purchase price that of acquired entities. So we are... that's the piece and as for depreciation, most of the additional depreciation is coming from our system initiative that we put in place. We spend about $10 million on that over the last year and half and that depreciates pretty rapidly.
Keith Walsh - Citigroup
Okay, great. And then, I guess the second question for Pat, it sort of relates to Doug's comment on issuing stock for robust M&A for assuming that miles going forward. And just on dividend philosophy, I mean I see your pay-out ratio has expanded very shortly over the last five years, and this mix means for you have slow internal growth prospects.
If you could comment on that and then just, may be comment on why wouldn't shareholders be better served using this cash to grow commissions and fees through M&A versus dividend? Thanks.
J. Patrick Gallagher, Jr. - Chairman of the Board, President and Chief Executive Office
Well, I'll let Doug pile in as well Keith, but I think if you look at our dividend distribution history, we've essentially returned to shareholders either through stock buybacks or dividends. About a third of our free cash year and we did that we brought the dividend up at a time prior to the Attorney General's efforts to eliminate contingent commissions.
So we probably ran a little bit ahead of what would be the norm in terms of paying out something in the order 50% of our EBITDA. So you'll see that dividend increases have essentially been about a penny a quarter for the last couple of years. So we've going to slow the increase there, but we believe very strongly in keeping the dividends solid and maintaining that dividend, in terms of how our stockholders get serve and offers a very nice return I think, while they wait around for an explosion in the market. Doug, you want to comment on that?
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