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Readers hoping to buy The Progressive Corporation (NYSE:PGR) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Progressive's shares on or after the 6th of July will not receive the dividend, which will be paid on the 15th of July.
The company's next dividend payment will be US$0.10 per share, and in the last 12 months, the company paid a total of US$4.90 per share. Calculating the last year's worth of payments shows that Progressive has a trailing yield of 5.0% on the current share price of $98.21. 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 investigate whether Progressive can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Progressive paid out a comfortable 44% of its profit last year.
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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Progressive's earnings have been skyrocketing, up 39% per annum for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Progressive has lifted its dividend by approximately 29% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
From a dividend perspective, should investors buy or avoid Progressive? 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. In summary, Progressive appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
On that note, you'll want to research what risks Progressive is facing. For instance, we've identified 2 warning signs for Progressive (1 is significant) you should be aware of.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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