Why You Might Be Interested In Lancashire Holdings Limited (LON:LRE) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Lancashire Holdings Limited (LON:LRE) is about to trade ex-dividend in the next 4 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. 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. Thus, you can purchase Lancashire Holdings' shares before the 14th of November in order to receive the dividend, which the company will pay on the 13th of December.

The company's next dividend payment will be US$0.75 per share. Last year, in total, the company distributed US$0.27 to shareholders. Looking at the last 12 months of distributions, Lancashire Holdings has a trailing yield of approximately 3.0% on its current stock price of UK£6.82. If you buy this business for its dividend, you should have an idea of whether Lancashire Holdings's dividend is reliable and sustainable. So we need to investigate whether Lancashire Holdings can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Lancashire Holdings

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Lancashire Holdings has a low and conservative payout ratio of just 15% of its income after tax.

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?

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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Lancashire Holdings's earnings have been skyrocketing, up 52% per annum for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Lancashire Holdings's dividend payments per share have declined at 10% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

The Bottom Line

Has Lancashire Holdings got what it takes to maintain its dividend payments? Companies like Lancashire Holdings that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. We think this is a pretty attractive combination, and would be interested in investigating Lancashire Holdings more closely.

On that note, you'll want to research what risks Lancashire Holdings is facing. For example, we've found 2 warning signs for Lancashire Holdings (1 is a bit unpleasant!) that deserve your attention before investing in the shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.