Don't Buy ProAssurance Corporation (NYSE:PRA) For Its Next Dividend Without Doing These Checks

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see ProAssurance Corporation (NYSE:PRA) is about to trade ex-dividend in the next four days. Investors can purchase shares before the 21st of December in order to be eligible for this dividend, which will be paid on the 7th of January.

ProAssurance's upcoming dividend is US$0.05 a share, following on from the last 12 months, when the company distributed a total of US$0.20 per share to shareholders. Calculating the last year's worth of payments shows that ProAssurance has a trailing yield of 1.1% on the current share price of $18.37. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for ProAssurance

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. ProAssurance 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?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. ProAssurance reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. ProAssurance's dividend payments per share have declined at 9.7% per year on average over the past nine years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Remember, you can always get a snapshot of ProAssurance's financial health, by checking our visualisation of its financial health, here.

To Sum It Up

Is ProAssurance worth buying for its dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. Worse, the general trend in its earnings looks negative in recent years. 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 ProAssurance. In terms of investment risks, we've identified 1 warning sign with ProAssurance and understanding them should be part of your investment process.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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