Stock Analysis

Stewart Information Services Corporation (NYSE:STC) Passed Our Checks, And It's About To Pay A US$0.45 Dividend

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NYSE:STC
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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Stewart Information Services Corporation (NYSE:STC) is about to go ex-dividend in just 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Stewart Information Services' shares before the 14th of December in order to be eligible for the dividend, which will be paid on the 30th of December.

The company's upcoming dividend is US$0.45 a share, following on from the last 12 months, when the company distributed a total of US$1.80 per share to shareholders. Last year's total dividend payments show that Stewart Information Services has a trailing yield of 4.2% on the current share price of $43.08. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Our analysis indicates that STC is potentially undervalued!

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. Stewart Information Services paid out just 18% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.

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.

historic-dividend
NYSE:STC Historic Dividend December 9th 2022

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Stewart Information Services has grown its earnings rapidly, up 36% a year for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Stewart Information Services has delivered 34% dividend growth per year on average over the past 10 years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Is Stewart Information Services an attractive dividend stock, or better left on the shelf? 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. In summary, Stewart Information Services appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.

While it's tempting to invest in Stewart Information Services for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Stewart Information Services that we recommend you consider before investing in the business.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

What are the risks and opportunities for Stewart Information Services?

Stewart Information Services Corporation, through its subsidiaries, provides title insurance and real estate transaction related services.

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Rewards

  • Trading at 61.4% below our estimate of its fair value

Risks

  • Earnings are forecast to decline by an average of 16.8% per year for the next 3 years

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Stewart Information Services

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