It looks like FedNat Holding Company (NASDAQ:FNHC) is about to go ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 15th of August will not receive the dividend, which will be paid on the 2nd of September.
FedNat Holding's upcoming dividend is US$0.08 a share, following on from the last 12 months, when the company distributed a total of US$0.32 per share to shareholders. Calculating the last year's worth of payments shows that FedNat Holding has a trailing yield of 2.4% on the current share price of $13.28. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
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. An unusually high payout ratio of 217% of its profit suggests something is happening other than the usual distribution of profits to shareholders.
When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. FedNat Holding's earnings per share have plummeted approximately 37% a year over the previous five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. FedNat Holding has seen its dividend decline 7.8% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
From a dividend perspective, should investors buy or avoid FedNat Holding? Not only are earnings per share shrinking, but FedNat Holding is paying out a disconcertingly high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. FedNat Holding doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.
Wondering what the future holds for FedNat Holding? See what the three analysts we track 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.
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