Readers wishing to buy American Financial Group, Inc. (NYSE: AFG) for its dividend will have to act shortly, as the stock is about to trade ex-dividend. The ex-dividend date is a business day before a company’s registration date, which is the date the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any share transaction must have been settled before the registration date to be eligible for a dividend. Thus, you can buy American Financial Group shares before June 7 in order to receive the dividend that the company will pay on June 15.
The upcoming dividend for American Financial Group will put a total of US $ 14.00 per share in the pockets of shareholders, up from last year’s total dividends of US $ 2.00. Dividends make a large contribution to investment returns for long-term holders, but only if the dividend continues to be paid. Accordingly, readers should always check whether American Financial Group has been able to increase its dividends or if the dividend could be reduced.
See our latest analysis for American Financial Group
Dividends are generally paid out of company profits. If a company pays more dividends than it made a profit, the dividend could be unsustainable. American Financial Group has a low and conservative payout ratio of only 15% of its after-tax income.
Companies that pay less dividends than they earn profits generally have more sustainable dividends. The lower the payout ratio, the more leeway the company has before being forced to reduce the dividend.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
Stocks of companies that generate sustainable earnings growth often offer the best dividend prospects because it’s easier to raise the dividend when earnings rise. If profits fall and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. It is encouraging to see that American Financial Group has grown its profits rapidly, rising 26% per year over the past five years.
Many investors will assess a company’s dividend yield by evaluating how much dividend payments have changed over time. American Financial Group has recorded dividend growth of 14% per year on average over the past 10 years. It’s great to see earnings per share increasing rapidly over several years, and dividends per share increasing at the same time.
The bottom line
From a dividend perspective, should investors buy or avoid American Financial Group? When companies grow rapidly and keep the majority of profits within the company, it is usually a sign that reinvesting profits is creating more value than paying dividends to shareholders. This strategy can bring significant added value to shareholders over the long term, provided it is applied without issuing too many new shares. We think this is a pretty attractive combination and would be interested in further investigating American Financial Group.
On that note, you’ll want to research the risks facing American Financial Group. For example, we have identified 4 warning signs for American Financial Group (1 is of concern) you must be aware.
A common investment mistake is to buy the first interesting stock you see. Here you will find a list of promising dividend paying stocks with a yield above 2% and an upcoming dividend.
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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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