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Readers hoping to buy Stewart Information Services Corporation (NYSE:STC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. This means that investors who purchase shares on or after the 14th of December will not receive the dividend, which will be paid on the 31st of December.
Stewart Information Services's next dividend payment will be US$0.30 per share, on the back of last year when the company paid a total of US$1.20 to shareholders. Looking at the last 12 months of distributions, Stewart Information Services has a trailing yield of approximately 2.5% on its current stock price of $47.07. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! 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. Fortunately Stewart Information Services's payout ratio is modest, at just 30% of profit.
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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Stewart Information Services has grown its earnings rapidly, up 25% a year for the past five years.
We'd also point out that Stewart Information Services issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Stewart Information Services has delivered 37% 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
Has Stewart Information Services got what it takes to maintain its dividend payments? Companies like Stewart Information Services that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. Overall, Stewart Information Services looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
In light of that, while Stewart Information Services has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 1 warning sign for Stewart Information Services that you should be aware of before investing in their 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. 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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