United Fire Group, Inc. (NASDAQ:UFCS) stock is about to trade ex-dividend in 4 days. The ex-dividend date occurs one day before the record date, which is the day on which shareholders need to be on the company's books in order 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 24th of February, you won't be eligible to receive the dividend, when it is paid on the 10th of March.
The company's next dividend payment will be US$0.20 per share, on the back of last year when the company paid a total of US$0.64 to shareholders. Last year's total dividend payments show that United Fire Group has a trailing yield of 2.1% on the current share price of US$38.66. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. United Fire Group is paying out just 14% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.
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.
See our latest analysis for United Fire Group
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see United Fire Group has grown its earnings rapidly, up 37% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the United Fire Group dividends are largely the same as they were 10 years ago.
To Sum It Up
Has United Fire Group got what it takes to maintain its dividend payments? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. We think this is a pretty attractive combination, and would be interested in investigating United Fire Group more closely.
While it's tempting to invest in United Fire Group for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for United Fire Group that you should be aware of before investing in their shares.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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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.