Is It Smart To Buy Donegal Group Inc. (NASDAQ:DGIC.B) Before It Goes Ex-Dividend?

It looks like Donegal Group Inc. (NASDAQ:DGIC.B) is about to go ex-dividend in the next three days. Investors can purchase shares before the 30th of October in order to be eligible for this dividend, which will be paid on the 16th of November.

Donegal Group's next dividend payment will be US$0.13 per share. Last year, in total, the company distributed US$0.53 to shareholders. Based on the last year's worth of payments, Donegal Group stock has a trailing yield of around 4.2% on the current share price of $12.75. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Donegal 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. Donegal Group paid out a comfortable 32% of its profit last year.

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?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Donegal Group has grown its earnings rapidly, up 24% 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. Donegal Group has delivered an average of 2.9% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

To Sum It Up

From a dividend perspective, should investors buy or avoid Donegal Group? 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. We think this is a pretty attractive combination, and would be interested in investigating Donegal Group more closely.

In light of that, while Donegal Group has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Donegal Group has 1 warning sign we think you should be aware of.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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