It looks like Cincinnati Financial Corporation (NASDAQ:CINF) is about to go ex-dividend in the next 4 days. You will need to purchase shares before the 15th of September to receive the dividend, which will be paid on the 15th of October.
Cincinnati Financial's next dividend payment will be US$0.60 per share, and in the last 12 months, the company paid a total of US$2.40 per share. Based on the last year's worth of payments, Cincinnati Financial stock has a trailing yield of around 3.0% on the current share price of $78.84. 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! As a result, readers should always check whether Cincinnati Financial has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Cincinnati Financial paid out more than half (68%) of its earnings last year, which is a regular payout ratio for most companies.
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.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that Cincinnati Financial's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Cincinnati Financial has increased its dividend at approximately 4.3% a year on average.
To Sum It Up
From a dividend perspective, should investors buy or avoid Cincinnati Financial? Cincinnati Financial's earnings are effectively flat over recent years, even as the company pays out more than half of its earnings to shareholders as dividends. We're unconvinced on the company's merits, and think there might be better opportunities out there.
With that being said, if dividends aren't your biggest concern with Cincinnati Financial, you should know about the other risks facing this business. For example, we've found 3 warning signs for Cincinnati Financial that we recommend you consider before investing in the business.
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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