Should You Buy Arbuthnot Banking Group PLC (LON:ARBB) For Its Upcoming Dividend?

Arbuthnot Banking Group PLC (LON:ARBB) is about to trade ex-dividend in the next three days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled 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. Meaning, you will need to purchase Arbuthnot Banking Group's shares before the 28th of August to receive the dividend, which will be paid on the 26th of September.

The company's next dividend payment will be UK£0.22 per share, on the back of last year when the company paid a total of UK£0.49 to shareholders. Based on the last year's worth of payments, Arbuthnot Banking Group stock has a trailing yield of around 4.8% on the current share price of UK£10.125. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Arbuthnot Banking Group can afford its dividend, and if the dividend could grow.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Arbuthnot Banking Group is paying out an acceptable 51% 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.

See our latest analysis for Arbuthnot Banking Group

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

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Arbuthnot Banking Group's earnings per share have risen 19% per annum over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Arbuthnot Banking Group has increased its dividend at approximately 6.1% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

From a dividend perspective, should investors buy or avoid Arbuthnot Banking Group? Earnings per share are growing at an attractive rate, and Arbuthnot Banking Group is paying out a bit over half its profits. We think this is a pretty attractive combination, and would be interested in investigating Arbuthnot Banking Group more closely.

While it's tempting to invest in Arbuthnot Banking Group for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 3 warning signs for Arbuthnot Banking 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.

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.