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American Financial Group, Inc. (NYSE:AFG) stock is about to trade ex-dividend in 3 days. You will need to purchase shares before the 18th of December to receive the dividend, which will be paid on the 29th of December.
American Financial Group's upcoming dividend is US$2.00 a share, following on from the last 12 months, when the company distributed a total of US$2.00 per share to shareholders. Last year's total dividend payments show that American Financial Group has a trailing yield of 2.3% on the current share price of $88.06. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for American Financial Group
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. American Financial Group paid out more than half (64%) of its earnings last year, which is a regular payout ratio for most companies.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by American Financial Group's 11% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. American Financial Group has delivered an average of 14% per year annual increase in its dividend, based on the past 10 years of dividend payments. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.
To Sum It Up
Has American Financial Group got what it takes to maintain its dividend payments? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. American Financial Group 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.