United Fire Group, Inc. (NASDAQ:UFCS) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase United Fire Group's shares on or after the 29th of November, you won't be eligible to receive the dividend, when it is paid on the 13th of December.
The company's next dividend payment will be US$0.16 per share. Last year, in total, the company distributed US$0.64 to shareholders. Based on the last year's worth of payments, United Fire Group has a trailing yield of 2.1% on the current stock price of US$29.89. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether United Fire Group can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see United Fire Group paying out a modest 32% of its earnings.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Click here to see how much of its profit United Fire Group paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see United Fire Group has grown its earnings rapidly, up 85% a year for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. United Fire Group's dividend payments per share have declined at 1.2% per year on average over the past 10 years, which is uninspiring.
The Bottom Line
Should investors buy United Fire Group for the upcoming dividend? Companies like United Fire Group that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. We think this is a pretty attractive combination, and would be interested in investigating United Fire Group more closely.
So while United Fire Group looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 2 warning signs with United Fire Group and understanding them should be part of your investment process.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.
