Essent Group Ltd. (NYSE:ESNT) Looks Like A Good Stock, And It's Going Ex-Dividend Soon
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Essent Group Ltd. (NYSE:ESNT) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 1st of June will not receive this dividend, which will be paid on the 12th of June.
Essent Group's next dividend payment will be US$0.16 per share, and in the last 12 months, the company paid a total of US$0.64 per share. Calculating the last year's worth of payments shows that Essent Group has a trailing yield of 2.0% on the current share price of $32.78. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Essent Group
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. Essent Group has a low and conservative payout ratio of just 7.8% of its income after tax.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Essent Group's earnings have been skyrocketing, up 41% per annum for the past five years.
Given that Essent Group has only been paying a dividend for a year, there's not much of a past history to draw insight from.
The Bottom Line
Should investors buy Essent Group for the upcoming dividend? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. In summary, Essent Group appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
While it's tempting to invest in Essent Group for the dividends alone, you should always be mindful of the risks involved. For example - Essent Group has 2 warning signs 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.
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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. Thank you for reading.
