Federal Agricultural Mortgage Corporation (NYSE:AGM) Passed Our Checks, And It's About To Pay A US$1.50 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Federal Agricultural Mortgage Corporation (NYSE:AGM) 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. The ex-dividend date is important as the process of settlement involves a full business day. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Federal Agricultural Mortgage's shares before the 15th of September in order to be eligible for the dividend, which will be paid on the 30th of September.

The company's upcoming dividend is US$1.50 a share, following on from the last 12 months, when the company distributed a total of US$6.00 per share to shareholders. Based on the last year's worth of payments, Federal Agricultural Mortgage has a trailing yield of 3.0% on the current stock price of US$199.74. 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 Federal Agricultural Mortgage can afford its dividend, and if the dividend could grow.

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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. Federal Agricultural Mortgage paid out a comfortable 34% of its profit last year.

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.

Check out our latest analysis for Federal Agricultural Mortgage

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Federal Agricultural Mortgage's earnings per share have risen 14% per annum over the last five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Federal Agricultural Mortgage has lifted its dividend by approximately 27% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Should investors buy Federal Agricultural Mortgage for the upcoming dividend? 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 strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. Federal Agricultural Mortgage ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.

In light of that, while Federal Agricultural Mortgage has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 2 warning signs for Federal Agricultural Mortgage (of which 1 shouldn't be ignored!) you should know about.

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.