Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Direct Line Insurance Group plc (LON:DLG) is about to go ex-dividend in just 3 days. Ex-dividend means that investors that purchase the stock on or after the 9th of April will not receive this dividend, which will be paid on the 21st of May.
Direct Line Insurance Group's next dividend payment will be UK£0.14 per share, and in the last 12 months, the company paid a total of UK£0.22 per share. Based on the last year's worth of payments, Direct Line Insurance Group has a trailing yield of 8.4% on the current stock price of £2.565. If you buy this business for its dividend, you should have an idea of whether Direct Line Insurance Group's dividend is reliable and sustainable. As a result, readers should always check whether Direct Line Insurance Group has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Direct Line Insurance Group paid out 73% of its earnings to investors last year, a normal payout level for most businesses.
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.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Direct Line Insurance Group, with earnings per share up 2.4% on average over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Direct Line Insurance Group has delivered an average of 14% per year annual increase in its dividend, based on the past seven years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
From a dividend perspective, should investors buy or avoid Direct Line Insurance Group? Earnings per share have been growing at a reasonable rate, and the company is paying out a bit over half its earnings as dividends. We're unconvinced on the company's merits, and think there might be better opportunities out there.
However if you're still interested in Direct Line Insurance Group as a potential investment, you should definitely consider some of the risks involved with Direct Line Insurance Group. To help with this, we've discovered 2 warning signs for Direct Line Insurance Group that you should be aware of before investing in their shares.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
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