It looks like Everest Re Group, Ltd. (NYSE:RE) is about to go ex-dividend in the next 4 days. You will need to purchase shares before the 1st of December to receive the dividend, which will be paid on the 23rd of December.
Everest Re Group's next dividend payment will be US$1.55 per share. Last year, in total, the company distributed US$6.20 to shareholders. Looking at the last 12 months of distributions, Everest Re Group has a trailing yield of approximately 2.6% on its current stock price of $237.49. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Everest Re Group can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Everest Re Group's payout ratio is modest, at just 37% of profit.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
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. With that in mind, we're discomforted by Everest Re Group's 8.7% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Everest Re Group has delivered an average of 12% per year annual increase in its dividend, based on the past 10 years of dividend payments.
To Sum It Up
Has Everest Re Group got what it takes to maintain its dividend payments? Earnings per share have shrunk noticeably in recent years, although we like that the company has a low payout ratio. This could suggest a cut to the dividend may not be a major risk in the near future. At best we would put it on a watch-list to see if business conditions improve, as it doesn't look like a clear opportunity right now.
With that being said, if dividends aren't your biggest concern with Everest Re Group, you should know about the other risks facing this business. In terms of investment risks, we've identified 1 warning sign with Everest Re Group and understanding them should be part of your investment process.
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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