Erie Indemnity Company (NASDAQ: ERIE) is set to trade ex-dividend within the next 4 days. Typically, the ex-dividend date is one business day prior to the record date which is the date a company determines which shareholders are eligible to receive a dividend. The ex-dividend date is important because any share transaction must have been settled before the registration date to be eligible for a dividend. As a result, Erie Indemnity investors who buy the shares on or after January 4 will not receive the dividend, which will be paid on January 20.
The company’s upcoming dividend is US $ 1.11 per share, continuing the past 12 months when the company distributed a total of US $ 4.14 per share to shareholders. Based on the value of last year’s payouts, Erie Indemnity has a rolling 2.3% return on the current share price of $ 193.77. Dividends are a major contributor to returns on investment for long-term holders, but only if the dividend continues to be paid. So we need to determine whether Erie Indemnity can afford its dividend and whether the dividend could increase.
See our latest review for Erie Indemnity
Dividends are usually paid out of business income, so if a business pays more than it earned, its dividend is usually at risk of being reduced. Erie Indemnity paid out 71% of its profits to investors last year, a normal payout level for most companies.
Generally speaking, the lower a company’s payout ratios, the more resilient its dividend.
Click here to see how much of its benefits Erie Indemnity has paid in the past 12 months.
Have profits and dividends increased?
Companies with constantly increasing earnings per share usually make the best dividend-paying stocks because they generally find it easier to increase dividends per share. If profits fall and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. For this reason, we are pleased to see that Erie Indemnity’s earnings per share have increased by 15% per year over the past five years.
Another key way to measure a company’s dividend outlook is by measuring its historical rate of dividend growth. Over the past 10 years, Erie Indemnity has increased its dividend to around 8.0% per year on average. We are happy to see dividends increasing along with earnings over a number of years, which may be a sign that the company intends to share the growth with its shareholders.
The bottom line
Should investors buy Erie Indemnity for the next dividend? Erie Indemnity has an acceptable payout ratio and its earnings per share are improving at a decent rate. Erie Indemnity ticks a lot of the boxes for us from a dividend perspective, and we believe those characteristics should mark the company as deserving more attention.
Want to explore more data on Erie Indemnity’s financial performance? Check out our visualization of its revenue and profit growth history.
However, we don’t recommend simply buying the first dividend stock you see. Here is a list of interesting dividend paying stocks with a yield above 2% and a dividend coming soon.
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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 any stock 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.