We Wouldn't Be Too Quick To Buy OUTsurance Group Limited (JSE:OUT) Before It Goes Ex-Dividend

OUTsurance Group Limited (JSE:OUT) is about to trade ex-dividend in the next 3 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. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase OUTsurance Group's shares on or after the 10th of April, you won't be eligible to receive the dividend, when it is paid on the 15th of April.

The company's upcoming dividend is R00.612 a share, following on from the last 12 months, when the company distributed a total of R1.64 per share to shareholders. Last year's total dividend payments show that OUTsurance Group has a trailing yield of 4.0% on the current share price of R041.60. If you buy this business for its dividend, you should have an idea of whether OUTsurance Group's dividend is reliable and sustainable. So we need to investigate whether OUTsurance Group can afford its dividend, and if the dividend could grow.

View our latest analysis for OUTsurance Group

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. OUTsurance Group is paying out an acceptable 64% of its profit, a common payout level among most companies.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's not ideal to see OUTsurance Group's earnings per share have been shrinking at 3.2% a year over the previous 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 past 10 years, OUTsurance Group has increased its dividend at approximately 5.6% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

To Sum It Up

Is OUTsurance Group an attractive dividend stock, or better left on the shelf? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with OUTsurance Group. For example, we've found 1 warning sign for OUTsurance Group that we recommend you consider before investing in the business.

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.