Donegal Group Inc. (NASDAQ:DGIC.A) Passed Our Checks, And It's About To Pay A US$0.15 Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Donegal Group Inc. (NASDAQ:DGIC.A) is about to go ex-dividend in just 4 days. If you purchase the stock on or after the 1st of February, you won't be eligible to receive this dividend, when it is paid on the 16th of February.

Donegal Group's next dividend payment will be US$0.15 per share, on the back of last year when the company paid a total of US$0.60 to shareholders. Based on the last year's worth of payments, Donegal Group has a trailing yield of 4.3% on the current stock price of $14.05. If you buy this business for its dividend, you should have an idea of whether Donegal Group's dividend is reliable and sustainable. So we need to investigate whether Donegal Group can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Donegal Group

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Donegal Group's payout ratio is modest, at just 33% of profit.

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?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Donegal Group's earnings have been skyrocketing, up 27% per annum 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. Donegal Group has delivered 2.7% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because Donegal Group is keeping back more of its profits to grow the business.

The Bottom Line

Has Donegal Group got what it takes to maintain its dividend payments? Companies like Donegal Group 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. Overall, Donegal Group looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.

On that note, you'll want to research what risks Donegal Group is facing. For instance, we've identified 2 warning signs for Donegal Group (1 is potentially serious) 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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