Dividend Investors: Don't Be Too Quick To Buy United Fire Group, Inc. (NASDAQ:UFCS) For Its Upcoming Dividend

United Fire Group, Inc. (NASDAQ:UFCS) is about to trade ex-dividend in the next four days. Investors can purchase shares before the 4th of March in order to be eligible for this dividend, which will be paid on the 19th of March.

United Fire Group's upcoming dividend is US$0.15 a share, following on from the last 12 months, when the company distributed a total of US$1.14 per share to shareholders. Calculating the last year's worth of payments shows that United Fire Group has a trailing yield of 3.9% on the current share price of $29.45. 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 check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for United Fire Group

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. United Fire Group lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. United Fire Group was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, United Fire Group has increased its dividend at approximately 6.6% a year on average.

We update our analysis on United Fire Group every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Has United Fire Group got what it takes to maintain its dividend payments? It's hard to get past the idea of United Fire Group paying a dividend despite reporting a loss over the past year - especially when the general trend in its earnings also looks to be negative. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with United Fire Group. For example - United Fire Group has 2 warning signs we think you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top 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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