Should You Buy Cincinnati Financial Corporation (NASDAQ:CINF) For Its Upcoming Dividend?
It looks like Cincinnati Financial Corporation (NASDAQ:CINF) is about to go ex-dividend in the next four days. This means that investors who purchase shares on or after the 16th of March will not receive the dividend, which will be paid on the 15th of April.
Cincinnati Financial's next dividend payment will be US$0.63 per share. Last year, in total, the company distributed US$2.52 to shareholders. Looking at the last 12 months of distributions, Cincinnati Financial has a trailing yield of approximately 2.4% on its current stock price of $106.25. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for Cincinnati Financial
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. Fortunately Cincinnati Financial's payout ratio is modest, at just 32% of profit.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Cincinnati Financial's earnings per share have been growing at 14% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Cincinnati Financial has delivered 4.8% dividend growth per year on average over the past 10 years. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
The Bottom Line
Has Cincinnati Financial got what it takes to maintain its dividend payments? Companies like Cincinnati Financial that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their 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. Cincinnati Financial ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 3 warning signs for Cincinnati Financial (of which 1 is significant!) you should know about.
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.
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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