Federal Agricultural Mortgage Corporation (NYSE:AGM) is about to trade ex-dividend in the next 4 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. This means that investors who purchase Federal Agricultural Mortgage's shares on or after the 14th of March will not receive the dividend, which will be paid on the 31st of March.

The company's next dividend payment will be US$1.50 per share. Last year, in total, the company distributed US$6.00 to shareholders. Looking at the last 12 months of distributions, Federal Agricultural Mortgage has a trailing yield of approximately 3.0% on its current stock price of US$200.77. 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 Federal Agricultural Mortgage

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Federal Agricultural Mortgage's payout ratio is modest, at just 34% of profit.

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?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Federal Agricultural Mortgage's earnings per share have risen 14% per annum 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. Federal Agricultural Mortgage has delivered an average of 27% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

From a dividend perspective, should investors buy or avoid Federal Agricultural Mortgage? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. We think this is a pretty attractive combination, and would be interested in investigating Federal Agricultural Mortgage more closely.

In light of that, while Federal Agricultural Mortgage has an appealing dividend, it's worth knowing the risks involved with this stock. Be aware that Federal Agricultural Mortgage is showing 2 warning signs in our investment analysis, and 1 of those is significant...

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.