United Fire Group (NASDAQ:UFCS) Will Pay A Dividend Of $0.16

United Fire Group, Inc. (NASDAQ:UFCS) has announced that it will pay a dividend of $0.16 per share on the 15th of September. This means the annual payment is 3.2% of the current stock price, which is above the average for the industry.

View our latest analysis for United Fire Group

United Fire Group's Distributions May Be Difficult To Sustain

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. United Fire Group is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

Looking forward, earnings per share could fall by 0.3% over the next year if the trend of the last few years can't be broken. This means that the company won't turn a profit over the next year, but with healthy cash flows at the moment the dividend could still be okay to continue.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was $0.60 in 2013, and the most recent fiscal year payment was $0.64. Dividend payments have grown at less than 1% a year over this period. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Although it's important to note that United Fire Group's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

United Fire Group's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about United Fire Group's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for United Fire Group you should be aware of, and 1 of them is concerning. If you are a dividend investor, you might also want to look at our curated 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.