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Federal Agricultural Mortgage Corporation (NYSE:AGM) stock is about to trade ex-dividend in four 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. This means that investors who purchase Federal Agricultural Mortgage's shares on or after the 14th of June will not receive the dividend, which will be paid on the 30th of June.
The company's next dividend payment will be US$0.95 per share. Last year, in total, the company distributed US$3.80 to shareholders. Based on the last year's worth of payments, Federal Agricultural Mortgage stock has a trailing yield of around 3.7% on the current share price of $101.92. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Federal Agricultural Mortgage
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. Fortunately Federal Agricultural Mortgage's payout ratio is modest, at just 32% of profit.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Click here to see how much of its profit Federal Agricultural Mortgage paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Federal Agricultural Mortgage's earnings per share have risen 13% per annum over the last five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Federal Agricultural Mortgage has lifted its dividend by approximately 34% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
Is Federal Agricultural Mortgage an attractive dividend stock, or better left on the shelf? 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. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. Federal Agricultural Mortgage ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.