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Why It Might Not Make Sense To Buy ProAssurance Corporation (NYSE:PRA) For Its Upcoming Dividend

It looks like ProAssurance Corporation (NYSE:PRA) is about to go ex-dividend in the next four days. Investors can purchase shares before the 25th of March in order to be eligible for this dividend, which will be paid on the 13th of April.

ProAssurance's next dividend payment will be US$0.05 per share. Last year, in total, the company distributed US$0.20 to shareholders. Calculating the last year's worth of payments shows that ProAssurance has a trailing yield of 0.7% on the current share price of $27.46. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for ProAssurance

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. ProAssurance reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term.

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

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. ProAssurance was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. ProAssurance's dividend payments per share have declined at 8.8% per year on average over the past 10 years, which is uninspiring. 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.

We update our analysis on ProAssurance every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

From a dividend perspective, should investors buy or avoid ProAssurance? It's hard to get past the idea of ProAssurance paying a dividend despite reporting a loss over the past year - especially when the general trend in its earnings also looks to be negative. ProAssurance 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.

With that in mind though, if the poor dividend characteristics of ProAssurance don't faze you, it's worth being mindful of the risks involved with this business. For example, we've found 1 warning sign for ProAssurance that we recommend you consider before investing in the business.

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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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