Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Tiptree Inc. (NASDAQ:TIPT) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 16th of August to receive the dividend, which will be paid on the 26th of August.
Tiptree’s next dividend payment will be US$0.04 per share, on the back of last year when the company paid a total of US$0.16 to shareholders. Last year’s total dividend payments show that Tiptree has a trailing yield of 2.5% on the current share price of $6.51. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Last year Tiptree paid out 96% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings.
Generally, the higher a company’s payout ratio, the more the dividend is at risk of being reduced.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. 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 Tiptree’s earnings have been skyrocketing, up 26% per annum for the past five years.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Tiptree’s dividend payments per share have declined at 9.9% per year on average over the past 10 years, which is uninspiring. Tiptree is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It’s unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
The Bottom Line
Is Tiptree worth buying for its dividend? We’re not enthused to see Tiptree’s dividend was not well covered by earnings over the last year, although it is great to see earnings growing. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we’re on the fence about its dividend prospects.
Want to learn more about Tiptree? Here’s a visualisation of its historical rate of revenue and earnings growth.
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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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.