Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Legal & General Group Plc (LON:LGEN) is about to trade ex-dividend in the next two days. You will need to purchase shares before the 13th of August to receive the dividend, which will be paid on the 24th of September.
Legal & General Group's next dividend payment will be UK£0.049 per share, and in the last 12 months, the company paid a total of UK£0.18 per share. Last year's total dividend payments show that Legal & General Group has a trailing yield of 7.7% on the current share price of £2.272. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Its dividend payout ratio is 84% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
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 Legal & General Group, with earnings per share up 4.5% on average over the last 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, Legal & General Group has lifted its dividend by approximately 16% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Should investors buy Legal & General Group for the upcoming dividend? Legal & General Group has been generating some growth in earnings per share while paying out more than half of its earnings to shareholders in the form of dividends. We're unconvinced on the company's merits, and think there might be better opportunities out there.
With that being said, if dividends aren't your biggest concern with Legal & General Group, you should know about the other risks facing this business. For example - Legal & General Group has 1 warning sign we think you should be aware of.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email email@example.com.