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Why You Should Leave QBE Insurance Group Limited (ASX:QBE)'s Upcoming Dividend On The Shelf

Simply Wall St

QBE Insurance Group Limited (ASX:QBE) is about to trade ex-dividend in the next 2 days. Ex-dividend means that investors that purchase the stock on or after the 5th of March will not receive this dividend, which will be paid on the 9th of April.

QBE Insurance Group's next dividend payment will be AU$0.27 per share. Last year, in total, the company distributed AU$0.34 to shareholders. Calculating the last year's worth of payments shows that QBE Insurance Group has a trailing yield of 3.8% on the current share price of A$13.59. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether QBE Insurance Group has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for QBE Insurance Group

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. It paid out 84% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline.

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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

ASX:QBE Historical Dividend Yield, March 2nd 2020

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. QBE Insurance Group's earnings per share have fallen at approximately 5.5% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. QBE Insurance Group has seen its dividend decline 11% per annum on average over the past ten years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

Is QBE Insurance Group worth buying for its dividend? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

Ever wonder what the future holds for QBE Insurance Group? See what the 11 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.