Why You Should Leave United Fire Group, Inc. (NASDAQ:UFCS)'s Upcoming Dividend On The Shelf

Simply Wall St

It looks like United Fire Group, Inc. (NASDAQ:UFCS) is about to go ex-dividend in the next 4 days. You can purchase shares before the 27th of November in order to receive the dividend, which the company will pay on the 13th of December.

United Fire Group's next dividend payment will be US$0.33 per share, and in the last 12 months, the company paid a total of US$1.32 per share. Last year's total dividend payments show that United Fire Group has a trailing yield of 3.1% on the current share price of $43.27. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for United Fire Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. United Fire Group paid out a disturbingly high 372% of its profit as dividends last year, which makes us concerned there's something we don't fully understand in the business.

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.

Click here to see how much of its profit United Fire Group paid out over the last 12 months.

NasdaqGS:UFCS Historical Dividend Yield, November 22nd 2019

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. United Fire Group's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 35% a year over the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past ten years, United Fire Group has increased its dividend at approximately 8.2% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. United Fire Group is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

Final Takeaway

Is United Fire Group an attractive dividend stock, or better left on the shelf? Not only are earnings per share shrinking, but United Fire Group is paying out a disconcertingly high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

Want to learn more about United Fire Group's dividend performance? Check out this visualisation of its historical revenue and earnings growth.

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.

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