Readers hoping to buy Arthur J. Gallagher & Co. (NYSE:AJG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 5th of December in order to be eligible for this dividend, which will be paid on the 20th of December.
Arthur J. Gallagher's next dividend payment will be US$0.43 per share, on the back of last year when the company paid a total of US$1.72 to shareholders. Last year's total dividend payments show that Arthur J. Gallagher has a trailing yield of 1.8% on the current share price of $93.3. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Arthur J. Gallagher has been able to grow its dividends, or if the dividend might be cut.
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. That's why it's good to see Arthur J. Gallagher paying out a modest 46% of its earnings.
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?
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. 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 Arthur J. Gallagher's earnings per share have risen 12% per annum over the last five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Arthur J. Gallagher has delivered an average of 3.0% per year annual increase in its dividend, based on the past ten years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Arthur J. Gallagher is keeping back more of its profits to grow the business.
The Bottom Line
Is Arthur J. Gallagher 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. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. Overall, Arthur J. Gallagher looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
Wondering what the future holds for Arthur J. Gallagher? See what the nine analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
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