Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Erie Indemnity Company (NASDAQ:ERIE) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 4th of October in order to be eligible for this dividend, which will be paid on the 22nd of October.
Erie Indemnity's upcoming dividend is US$0.9 a share, following on from the last 12 months, when the company distributed a total of US$3.6 per share to shareholders. Based on the last year's worth of payments, Erie Indemnity stock has a trailing yield of around 2.0% on the current share price of $183.87. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Erie Indemnity is paying out an acceptable 61% of its profit, a common payout level among most companies.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Erie Indemnity'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. In the past ten years, Erie Indemnity has increased its dividend at approximately 7.4% 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.
Is Erie Indemnity worth buying for its dividend? Earnings per share are growing nicely, and Erie Indemnity is paying out a percentage of its earnings that is around the average for dividend-paying stocks. In summary, Erie Indemnity appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
Keen to explore more data on Erie Indemnity's financial performance? Check out our visualisation of its historical revenue and earnings growth.
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.