Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see FBL Financial Group, Inc. (NYSE:FFG) is about to trade ex-dividend in the next three days. This means that investors who purchase shares on or after the 14th of September will not receive the dividend, which will be paid on the 30th of September.
FBL Financial Group’s next dividend payment will be US$0.50 per share, on the back of last year when the company paid a total of US$3.50 to shareholders. Looking at the last 12 months of distributions, FBL Financial Group has a trailing yield of approximately 7.0% on its current stock price of $50.25. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for FBL Financial Group
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. FBL Financial Group is paying out an acceptable 58% of its profit, a common payout level among most companies.
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. FBL Financial Group’s earnings per share have fallen at approximately 5.3% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. FBL Financial Group has delivered an average of 30% per year annual increase in its dividend, based on the past 10 years of dividend payments. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it’s always worth checking for when the company can’t increase the payout ratio any more – because then the music stops.
The Bottom Line
Has FBL Financial Group got what it takes to maintain its dividend payments? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. These characteristics don’t generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.
With that in mind though, if the poor dividend characteristics of FBL Financial Group don’t faze you, it’s worth being mindful of the risks involved with this business. Case in point: We’ve spotted 2 warning signs for FBL Financial Group you should be aware of.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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.
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