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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 AMERISAFE, Inc. (NASDAQ:AMSF) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 11th of March will not receive this dividend, which will be paid on the 26th of March.
AMERISAFE's next dividend payment will be US$0.29 per share. Last year, in total, the company distributed US$4.66 to shareholders. Calculating the last year's worth of payments shows that AMERISAFE has a trailing yield of 7.5% on the current share price of $62.14. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
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. AMERISAFE has a low and conservative payout ratio of just 24% of its income after tax.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
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. This is why it's a relief to see AMERISAFE earnings per share are up 3.8% per annum over the last five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. AMERISAFE has delivered 40% dividend growth per year on average over the past eight years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Has AMERISAFE got what it takes to maintain its dividend payments? It has been growing its earnings per share somewhat in recent years, although it reinvests more than half its earnings in the business, which could suggest there are some growth projects that have not yet reached fruition. In summary, AMERISAFE 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 AMERISAFE is facing. For instance, we've identified 2 warning signs for AMERISAFE (1 makes us a bit uncomfortable) 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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