The advice of ProAssurance Corporation (NYSE: PRA) has announced that it will pay a dividend of $ 0.05 per share on October 8. Including this payout, the dividend yield on the stock will be 0.9%, which is a modest boost to shareholder returns.
ProAssurance may struggle to continue dividend
If predictable over a long period of time, even low dividend yields can be attractive. ProAssurance does not generate a profit, but its free cash flow easily covers the dividend, leaving a lot to reinvest in the business. We generally think cash flow is more important than accounting measures of profit, so we’re pretty comfortable with the dividend at this level.
Over the next year EPS could drop 63.3% based on recent performance. This means that the company will not be profitable, but the cash flow is more important when you consider the dividend and since the current cash payout ratio is quite healthy, we don’t think there are too many reasons. to worry.
NYSE: Historical PRA Dividend September 21, 2021
While the company has been paying a dividend for a long time, it has reduced the dividend at least once in the past 10 years. Since 2011, the dividend has increased from US $ 0.50 to US $ 0.20. This represents a decrease of about 8.8% per year during this period. Falling dividends are usually not what we are looking for, as they may indicate that the business is facing some challenges.
The dividend has limited growth potential
With a relatively volatile dividend and a bad history of falling dividends, it’s even more important to see if EPS rises. Earnings per share have fallen 63% over the past five years. A sharp drop in earnings per share isn’t terrible from a dividend standpoint. Even conservative payout ratios can be put under pressure if earnings fall enough.
ProAssurance dividend does not seem sustainable
Overall, it’s nice to see a consistent dividend payout, but we believe in the longer term the current payout level could be unsustainable. Payments haven’t been particularly stable and we don’t see huge growth potential, but with the dividend well covered by cash flow, it could prove to be reliable in the short term. We would probably look elsewhere for an income investment.
It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an erratic policy. However, there are other things for investors to consider when analyzing the performance of stocks. Since profits are not increasing, the dividend looks nowhere near as attractive. However, very few companies see their profits steadily decline from year to year, so it might be worth seeing what the 3 the analysts we follow are forecasting the future. We have also set up a list of global stocks with a solid dividend.
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