Is It Smart To Buy RenaissanceRe Holdings Ltd. (NYSE:RNR) Before It Goes Ex-Dividend?

RenaissanceRe Holdings Ltd. (NYSE:RNR) stock is about to trade ex-dividend in 4 days. If you purchase the stock on or after the 12th of March, you won't be eligible to receive this dividend, when it is paid on the 31st of March.

RenaissanceRe Holdings's next dividend payment will be US$0.36 per share, and in the last 12 months, the company paid a total of US$1.44 per share. Last year's total dividend payments show that RenaissanceRe Holdings has a trailing yield of 0.9% on the current share price of $164.38. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for RenaissanceRe Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. RenaissanceRe Holdings has a low and conservative payout ratio of just 9.1% of its income after tax.

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 the company's payout ratio, plus analyst estimates of its future dividends.

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 earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, RenaissanceRe Holdings's earnings per share have been growing at 10% a year for the past five years.

RenaissanceRe Holdings also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, RenaissanceRe Holdings has lifted its dividend by approximately 3.7% a year on average. Earnings per share have been growing much quicker than dividends, potentially because RenaissanceRe Holdings is keeping back more of its profits to grow the business.

Final Takeaway

Is RenaissanceRe Holdings worth buying for its dividend? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. We think this is a pretty attractive combination, and would be interested in investigating RenaissanceRe Holdings more closely.

While it's tempting to invest in RenaissanceRe Holdings for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for RenaissanceRe Holdings and you should be aware of this before buying any shares.

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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