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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 Mercury General Corporation (NYSE:MCY) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 14th of September to receive the dividend, which will be paid on the 29th of September.
Mercury General's next dividend payment will be US$0.63 per share. Last year, in total, the company distributed US$2.52 to shareholders. Looking at the last 12 months of distributions, Mercury General has a trailing yield of approximately 5.7% on its current stock price of $44.3. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Mercury General paid out 73% of its earnings to investors last year, a normal payout level for most businesses.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that Mercury General's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.
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, Mercury General has lifted its dividend by approximately 0.7% a year on average.
The Bottom Line
Has Mercury General got what it takes to maintain its dividend payments? Mercury General has been struggling to generate growth while also paying out more than half of its earnings to shareholders as dividends. We think there are likely better opportunities out there.
Want to learn more about Mercury General? Here's a visualisation of its historical rate of revenue and earnings growth.
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. 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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