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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 Direct Line Insurance Group plc (LON:DLG) is about to go ex-dividend in just 2 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Direct Line Insurance Group's shares on or after the 7th of April will not receive the dividend, which will be paid on the 17th of May.
The company's next dividend payment will be UK£0.15 per share, on the back of last year when the company paid a total of UK£0.23 to shareholders. Calculating the last year's worth of payments shows that Direct Line Insurance Group has a trailing yield of 8.2% on the current share price of £2.755. 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 Direct Line Insurance Group has been able to grow its dividends, or if the dividend might be cut.
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. Direct Line Insurance Group paid out 93% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances.
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.
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 fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Direct Line Insurance Group earnings per share are up 4.1% per annum over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past nine years, Direct Line Insurance Group has increased its dividend at approximately 11% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Has Direct Line Insurance Group got what it takes to maintain its dividend payments? While we like that its earnings are growing somewhat, we're not enamored that it's paying out 93% of last year's earnings. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.
So if you're still interested in Direct Line Insurance Group despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To help with this, we've discovered 1 warning sign for Direct Line Insurance Group that you should be aware of before investing in their shares.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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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.