Dividend Investors: Don't Be Too Quick To Buy Employers Holdings, Inc. (NYSE:EIG) For Its Upcoming Dividend

Employers Holdings, Inc. (NYSE:EIG) is about to trade ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Employers Holdings' shares before the 9th of August in order to receive the dividend, which the company will pay on the 24th of August.

The company's next dividend payment will be US$0.26 per share. Last year, in total, the company distributed US$1.04 to shareholders. Calculating the last year's worth of payments shows that Employers Holdings has a trailing yield of 2.7% on the current share price of $38.48. 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! As a result, readers should always check whether Employers Holdings has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Employers Holdings

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. Employers Holdings is paying out an acceptable 54% of its profit, a common payout level among most companies.

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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Employers Holdings's 10% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Employers Holdings has increased its dividend at approximately 16% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

To Sum It Up

Has Employers Holdings got what it takes to maintain its dividend payments? We're not overly enthused to see Employers Holdings's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. Employers Holdings doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

With that being said, if you're still considering Employers Holdings as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 1 warning sign for Employers Holdings that you should be aware of before investing in their shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.

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