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Don't Buy United Fire Group, Inc. (NASDAQ:UFCS) For Its Next Dividend Without Doing These Checks

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  • UFCS

United Fire Group, Inc. (NASDAQ:UFCS) is about to trade ex-dividend in the next four 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, United Fire Group investors that purchase the stock on or after the 2nd of December will not receive the dividend, which will be paid on the 17th of December.

The company's next dividend payment will be US$0.15 per share. Last year, in total, the company distributed US$0.60 to shareholders. Based on the last year's worth of payments, United Fire Group has a trailing yield of 2.8% on the current stock price of $21.44. 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! We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for United Fire 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. Last year United Fire Group paid out 108% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings.

Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

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. United Fire Group's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 30% a year over the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. United Fire Group's dividend payments are broadly unchanged compared to where they were 10 years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

The Bottom Line

Has United Fire Group got what it takes to maintain its dividend payments? Earnings per share are in decline and United Fire 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. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

Although, if you're still interested in United Fire Group and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 2 warning signs for United Fire Group that we recommend you consider before investing in the business.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.