It looks like United Fire Group, Inc. (NASDAQ: UFCS) is set to be ex-dividend within the next four days. The ex-dividend date occurs one day before the record date, which is the day on which shareholders must be on the books of the company to receive a dividend. The ex-dividend date is important because every time a stock is bought or sold, the transaction takes at least two business days to settle. This means that investors who buy United Fire Group shares on or after December 2 will not receive the dividend, which will be paid on December 17.

The company’s next dividend payment will be US $ 0.15 per share. Last year, in total, the company distributed US $ 0.60 to shareholders. Based on the value of last year’s payouts, United Fire Group has a rolling 2.8% return on the current share price of $ 21.44. We love to see companies pay a dividend, but it’s also important to be sure that laying the golden eggs is not going to kill our goose that lays the golden eggs! That is why we should always check whether dividend payments seem sustainable and whether the business is growing.

Check out our latest review for United Fire Group

Dividends are generally paid out of company profits. If a company pays more dividends than it made a profit, then the dividend could be unsustainable. Last year, United Fire Group paid out 108% of its revenue as dividends, which is above a level we’re comfortable with, especially if the company needs to reinvest in its business.

When the dividend payout ratio is high, as in this case, the dividend is generally more likely to be reduced in the future.

Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.

Have profits and dividends increased?

Companies with declining profits are riskier for dividend shareholders. If business goes into recession and the dividend is reduced, the company could experience a sharp drop in value. United Fire Group’s earnings per share have fallen about 30% per year over the past five years.

Many investors will assess a company’s dividend yield by evaluating how much dividend payments have changed over time. United Fire Group dividends appear to be largely the same as 10 years ago. When profits decline but dividends are stable, the company usually pays a higher portion of its profits or pays cash or debt on the balance sheet, which is not ideal.

The bottom line

Is United Fire Group an attractive dividend-paying stock, or rather left on the back burner? Earnings per share are down and United Fire Group is paying out what we think is an uncomfortably high percentage of its earnings as dividends. In general, we believe dividend investors should avoid companies in this situation, as high payout ratios and falling profits can lead to a reduction in the dividend. These characteristics do not generally lead to outstanding dividend performance, and investors may not be satisfied with the results of holding that stock for its dividend.

So, if you are still interested in United Fire Group despite its low dividend qualities, you should be well informed about some of the risks that this stock faces. For example, we found 2 warning signs for United Fire Group which we recommend that you consider before investing in the business.

A common investment mistake is to buy the first interesting stock you see. Here you will find a list of promising dividend paying stocks with a yield above 2% and an upcoming dividend.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.