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It looks like American Financial Group, Inc. (NYSE:AFG) is about to go ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase American Financial Group's shares before the 19th of May in order to be eligible for the dividend, which will be paid on the 27th of May.
The company's next dividend payment will be US$8.00 per share, which looks like a nice increase on last year, when the company distributed a total of US$2.24 to shareholders. If you buy this business for its dividend, you should have an idea of whether American Financial Group's dividend is reliable and sustainable. So we need to investigate whether American Financial Group can afford its dividend, and if the dividend could grow.
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 just 16% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, American Financial Group's earnings per share have been growing at 12% a year for the past five years.
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 13% per year annual increase in its dividend, based on the past 10 years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
From a dividend perspective, should investors buy or avoid American Financial Group? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. Overall, American Financial Group looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.