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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see The Hanover Insurance Group, Inc. (NYSE:THG) is about to trade ex-dividend in the next four 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Hanover Insurance Group's shares on or after the 9th of September will not receive the dividend, which will be paid on the 24th of September.
The company's next dividend payment will be US$0.70 per share. Last year, in total, the company distributed US$2.80 to shareholders. Based on the last year's worth of payments, Hanover Insurance Group stock has a trailing yield of around 2.0% on the current share price of $139.54. If you buy this business for its dividend, you should have an idea of whether Hanover Insurance Group's dividend is reliable and sustainable. So we need to investigate whether Hanover Insurance Group can afford its dividend, and if the dividend could grow.
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. Hanover Insurance Group has a low and conservative payout ratio of just 20% of its income after tax.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Hanover Insurance Group's earnings per share have risen 13% 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. Hanover Insurance Group has delivered 11% dividend growth per year on average over the past 10 years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Is Hanover Insurance Group worth buying for its dividend? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. Overall, Hanover Insurance Group looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
In light of that, while Hanover Insurance Group has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 2 warning signs for Hanover Insurance Group (1 is a bit unpleasant!) that deserve your attention before investing in the shares.
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. 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.
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