AMERISAFE, Inc. (NASDAQ:AMSF) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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 AMERISAFE's shares before the 7th of March in order to be eligible for the dividend, which will be paid on the 22nd of March.
The company's upcoming dividend is US$0.37 a share, following on from the last 12 months, when the company distributed a total of US$4.98 per share to shareholders. Calculating the last year's worth of payments shows that AMERISAFE has a trailing yield of 9.5% on the current share price of US$52.19. 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 investigate whether AMERISAFE can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately AMERISAFE's payout ratio is modest, at just 42% of profit.
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?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's not ideal to see AMERISAFE's earnings per share have been shrinking at 2.7% a year over the previous five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. AMERISAFE has delivered an average of 32% per year annual increase in its dividend, based on the past 10 years of dividend payments.
The Bottom Line
From a dividend perspective, should investors buy or avoid AMERISAFE? AMERISAFE's earnings per share are down over the past five years, although it has the cushion of a low payout ratio, which would suggest a cut to the dividend is relatively unlikely. We think there are likely better opportunities out there.
If you're not too concerned about AMERISAFE's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For example, we've found 2 warning signs for AMERISAFE (1 makes us a bit uncomfortable!) that deserve your attention before investing in the shares.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.