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RLI Corp. (NYSE:RLI) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase RLI's shares before the 27th of May to receive the dividend, which will be paid on the 18th of June.
The company's next dividend payment will be US$0.25 per share, on the back of last year when the company paid a total of US$2.00 to shareholders. Based on the last year's worth of payments, RLI stock has a trailing yield of around 1.9% on the current share price of $107.05. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for RLI
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. RLI is paying out just 15% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.
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. For this reason, we're glad to see RLI's earnings per share have risen 15% per annum over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. RLI has delivered 13% dividend growth per year on average over the past 10 years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
Is RLI an attractive dividend stock, or better left on the shelf? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. We think this is a pretty attractive combination, and would be interested in investigating RLI more closely.