Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Universal Insurance Holdings, Inc. (NYSE:UVE) is about to trade ex-dividend in the next three days.  The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment.  It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date.   Accordingly, Universal Insurance Holdings investors that purchase the stock on or after the 9th of May will not receive the dividend, which will be paid on the 17th of May.  

The company's next dividend payment will be US$0.16 per share, on the back of last year when the company paid a total of US$0.77 to shareholders.  Last year's total dividend payments show that Universal Insurance Holdings has a trailing yield of 3.9% on the current share price of US$19.81.    We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose!  So we need to investigate whether Universal Insurance Holdings can afford its dividend, and if the dividend could grow.

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.   Universal Insurance Holdings paid out just 25% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.  

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.

Click here to see how much of its profit Universal Insurance Holdings paid out over the last 12 months.

NYSE:UVE Historic Dividend May 5th 2024

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 Universal Insurance Holdings's earnings per share have been shrinking at 4.6% 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.     In the last 10 years, Universal Insurance Holdings has lifted its dividend by approximately 8.5% a year on average.      

To Sum It Up

Should investors buy Universal Insurance Holdings for the upcoming dividend?      Universal Insurance Holdings'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.        It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're on the fence about its dividend prospects.  

With that being said, if dividends aren't your biggest concern with Universal Insurance Holdings, you should know about the other risks facing this business.     For example, we've found 1 warning sign for Universal Insurance Holdings that we recommend you consider before investing in the business.  

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.