United Fire Group, Inc. (NASDAQ:UFCS) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

It looks like United Fire Group, Inc. (NASDAQ:UFCS) is about to go ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least one business day to settle. Therefore, if you purchase United Fire Group's shares on or after the 7th of March, you won't be eligible to receive the dividend, when it is paid on the 21st of March.

The company's next dividend payment will be US$0.16 per share, on the back of last year when the company paid a total of US$0.64 to shareholders. Calculating the last year's worth of payments shows that United Fire Group has a trailing yield of 2.3% on the current share price of US$28.07. 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 United Fire Group can afford its dividend, and if the dividend could grow.

View our latest analysis for United Fire Group

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. United Fire Group paid out a comfortable 26% of its profit last year.

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 how much of its profit United Fire Group paid out over the last 12 months.

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. It's encouraging to see United Fire Group has grown its earnings rapidly, up 33% a year 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. United Fire Group has seen its dividend decline 2.2% per annum on average over the past 10 years, which is not great to see. United Fire Group 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.

Final Takeaway

From a dividend perspective, should investors buy or avoid United Fire Group? 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 is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. In summary, United Fire Group appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.

So while United Fire Group looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - United Fire Group has 1 warning sign we think you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.