Readers hoping to buy American Financial Group, Inc. (NYSE:AFG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company’s books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase American Financial Group’s shares on or after the 10th of November will not receive the dividend, which will be paid on the 22nd of November.
The company’s next dividend payment will be US$1.50 per share. Last year, in total, the company distributed US$2.84 to shareholders. Looking at the last 12 months of distributions, American Financial Group has a trailing yield of approximately 2.6% on its current stock price of $109.86. If you buy this business for its dividend, you should have an idea of whether American Financial Group’s dividend is reliable and sustainable. As a result, readers should always check whether American Financial Group has been able to grow its dividends, or if the dividend might be cut.
See our latest analysis for American Financial Group
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. Fortunately American Financial Group’s payout ratio is modest, at just 26% of profit.
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 the company’s payout ratio, plus analyst estimates of its future dividends.
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 fall far enough, the company could be forced to cut its dividend. For this reason, we’re glad to see American Financial Group’s earnings per share have risen 14% per annum over the last five years.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, American Financial Group has lifted its dividend by approximately 14% a year on average. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
Is American Financial Group an attractive dividend stock, or better left on the shelf? When companies are growing rapidly and retaining a majority of the profits within the business, it’s usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. In summary, American Financial Group appears to have some promise as a dividend stock, and we’d suggest taking a closer look at it.
While it’s tempting to invest in American Financial Group for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for American Financial Group and you should be aware of it before buying any shares.
If you’re in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
