Dividend Investors: Don't Be Too Quick To Buy Safety Insurance Group, Inc. (NASDAQ:SAFT) For Its Upcoming Dividend
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 Safety Insurance Group, Inc. (NASDAQ:SAFT) is about to go ex-dividend in just 2 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. Therefore, if you purchase Safety Insurance Group's shares on or after the 31st of August, you won't be eligible to receive the dividend, when it is paid on the 15th of September.
The company's upcoming dividend is US$0.90 a share, following on from the last 12 months, when the company distributed a total of US$3.60 per share to shareholders. Calculating the last year's worth of payments shows that Safety Insurance Group has a trailing yield of 5.1% on the current share price of $70.29. If you buy this business for its dividend, you should have an idea of whether Safety Insurance Group's dividend is reliable and sustainable. As a result, readers should always check whether Safety Insurance Group has been able to grow its dividends, or if the dividend might be cut.
See our latest analysis for Safety Insurance Group
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Safety Insurance Group paid out 149% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance.
When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.
Click here to see how much of its profit Safety Insurance Group paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Safety Insurance Group's 10% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
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, 10 years ago, Safety Insurance Group has lifted its dividend by approximately 4.1% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Safety Insurance Group is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.
Final Takeaway
Has Safety Insurance Group got what it takes to maintain its dividend payments? Earnings per share are in decline and Safety Insurance Group is paying out what we feel is an uncomfortably high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. Safety Insurance Group doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.
With that in mind though, if the poor dividend characteristics of Safety Insurance Group don't faze you, it's worth being mindful of the risks involved with this business. To that end, you should learn about the 3 warning signs we've spotted with Safety Insurance Group (including 2 which are significant).
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
