Here's Why We're Wary Of Buying United Fire Group's (NASDAQ:UFCS) For Its Upcoming Dividend

Simply Wall St
·3 min read

It looks like United Fire Group, Inc. (NASDAQ:UFCS) is about to go ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 4th of March will not receive the dividend, which will be paid on the 19th of March.

United Fire Group's next dividend payment will be US$0.15 per share. Last year, in total, the company distributed US$1.14 to shareholders. Based on the last year's worth of payments, United Fire Group has a trailing yield of 3.9% on the current stock price of $29.45. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether United Fire Group has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for United Fire Group

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. United Fire Group reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. United Fire Group reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. United Fire Group has delivered an average of 6.6% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Remember, you can always get a snapshot of United Fire Group's financial health, by checking our visualisation of its financial health, here.

To Sum It Up

From a dividend perspective, should investors buy or avoid United Fire Group? First, it's not great to see the company paying a dividend despite being loss-making over the last year. Worse, the general trend in its earnings looks negative in recent years. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with United Fire Group. Case in point: We've spotted 2 warning signs for United Fire 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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