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AMERISAFE, Inc. (NASDAQ:AMSF) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 3rd of December will not receive the dividend, which will be paid on the 18th of December.
AMERISAFE's next dividend payment will be US$0.27 per share, on the back of last year when the company paid a total of US$4.58 to shareholders. Looking at the last 12 months of distributions, AMERISAFE has a trailing yield of approximately 8.2% on its current stock price of $56. 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.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. AMERISAFE paid out just 22% 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.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see AMERISAFE's earnings per share have risen 11% per annum over the last five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, eight years ago, AMERISAFE has lifted its dividend by approximately 39% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Is AMERISAFE an attractive dividend stock, or better left on the shelf? 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 AMERISAFE more closely.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, AMERISAFE has 2 warning signs (and 1 which is significant) we think you should know about.
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.
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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