Dividend Investors: Don't Be Too Quick To Buy Stewart Information Services Corporation (NYSE:STC) For Its Upcoming Dividend

Stewart Information Services Corporation (NYSE:STC) is about to trade ex-dividend in the next two 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Stewart Information Services' shares on or after the 16th of September will not receive the dividend, which will be paid on the 30th of September.

The company's next dividend payment will be US$0.50 per share, and in the last 12 months, the company paid a total of US$1.90 per share. Based on the last year's worth of payments, Stewart Information Services stock has a trailing yield of around 2.7% on the current share price of US$71.50. 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.

Check out our latest analysis for Stewart Information Services

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Stewart Information Services distributed an unsustainably high 121% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious.

When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.

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. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that Stewart Information Services's earnings are down 5.0% a year over the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Stewart Information Services has increased its dividend at approximately 34% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Stewart Information Services is already paying out 121% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

To Sum It Up

Is Stewart Information Services an attractive dividend stock, or better left on the shelf? Earnings per share are in decline and Stewart Information Services is paying out what we feel is an uncomfortably high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

With that in mind though, if the poor dividend characteristics of Stewart Information Services don't faze you, it's worth being mindful of the risks involved with this business. For instance, we've identified 2 warning signs for Stewart Information Services (1 is a bit unpleasant) you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.