Why It Might Not Make Sense To Buy ProAssurance Corporation (NYSE:PRA) For Its Upcoming Dividend
Readers hoping to buy ProAssurance Corporation (NYSE:PRA) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 23rd of September to receive the dividend, which will be paid on the 9th of October.
ProAssurance's next dividend payment will be US$0.05 per share, on the back of last year when the company paid a total of US$0.20 to shareholders. Calculating the last year's worth of payments shows that ProAssurance has a trailing yield of 1.4% on the current share price of $14.36. 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.
View 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 last year, so it's not great to see that it has continued paying a dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. 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.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. ProAssurance's dividend payments per share have declined at 9.7% per year on average over the past nine 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.
Get our latest analysis on ProAssurance's balance sheet health here.
The Bottom Line
Is ProAssurance an attractive dividend stock, or better left on the shelf? First, it's not great to see the company paying a dividend despite being loss-making over the last year. Worse, the general trend in its earnings looks negative in recent years. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.
Curious what other investors think of ProAssurance? See what analysts 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.
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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