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It looks like Selective Insurance Group, Inc. (NASDAQ:SIGI) is about to go ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 13th of February will not receive this dividend, which will be paid on the 2nd of March.
Selective Insurance Group's next dividend payment will be US$0.23 per share, and in the last 12 months, the company paid a total of US$0.92 per share. Based on the last year's worth of payments, Selective Insurance Group stock has a trailing yield of around 1.3% on the current share price of $68.35. If you buy this business for its dividend, you should have an idea of whether Selective Insurance Group's dividend is reliable and sustainable. So we need to investigate whether Selective Insurance Group can afford its dividend, and if the dividend could grow.
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. Selective Insurance Group is paying out just 18% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
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. 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, Selective Insurance Group's earnings per share have been growing at 12% a year for the past five years.
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, ten years ago, Selective Insurance Group has lifted its dividend by approximately 5.9% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
The Bottom Line
From a dividend perspective, should investors buy or avoid Selective Insurance Group? 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. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. We think this is a pretty attractive combination, and would be interested in investigating Selective Insurance Group more closely.
Curious what other investors think of Selective Insurance Group? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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