American Financial Group, Inc. (NYSE:AFG) Passed Our Checks, And It's About To Pay A US$2.00 Dividend

It looks like American Financial Group, Inc. (NYSE:AFG) is about to go ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date, which is the day on which shareholders need to be on the company's books in order to receive a 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. Accordingly, American Financial Group investors that purchase the stock on or after the 17th of November will not receive the dividend, which will be paid on the 26th of November.

The company's upcoming dividend is US$2.00 a share, following on from the last 12 months, when the company distributed a total of US$3.52 per share to shareholders. Calculating the last year's worth of payments shows that American Financial Group has a trailing yield of 2.5% on the current share price of US$142.37. If you buy this business for its dividend, you should have an idea of whether American Financial Group's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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. American Financial Group paid out a comfortable 34% 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.

View our latest analysis for American Financial Group

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. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see American Financial Group's earnings per share have risen 11% per annum over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. American Financial Group has delivered an average of 5.8% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because American Financial Group is keeping back more of its profits to grow the business.

The Bottom Line

Should investors buy American Financial Group for the upcoming dividend? 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 strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. American Financial Group ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.

In light of that, while American Financial Group has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 2 warning signs for American Financial Group you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.