It looks like Mercury General Corporation (NYSE:MCY) is about to go ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 11th of December will not receive this dividend, which will be paid on the 26th of December.
Mercury General’s next dividend payment will be US$0.63 per share, and in the last 12 months, the company paid a total of US$2.52 per share. Looking at the last 12 months of distributions, Mercury General has a trailing yield of approximately 5.1% on its current stock price of $49.45. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it’s growing.
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. Mercury General paid out 67% of its earnings to investors last year, a normal payout level for most businesses.
Generally speaking, the lower a company’s payout ratios, the more resilient its dividend usually is.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Mercury General’s earnings per share have been growing at 13% 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. In the past ten years, Mercury General has increased its dividend at approximately 0.8% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Mercury General is keeping back more of its profits to grow the business.
Has Mercury General got what it takes to maintain its dividend payments? Earnings per share are growing nicely, and Mercury General is paying out a percentage of its earnings that is around the average for dividend-paying stocks. In summary, Mercury General appears to have some promise as a dividend stock, and we’d suggest taking a closer look at it.
Curious what other investors think of Mercury General? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
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.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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