Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Houlihan Lokey, Inc. (NYSE:HLI) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 4th of March will not receive the dividend, which will be paid on the 16th of March.

Houlihan Lokey's next dividend payment will be US$0.31 per share. Last year, in total, the company distributed US$1.24 to shareholders. Calculating the last year's worth of payments shows that Houlihan Lokey has a trailing yield of 2.4% on the current share price of $51.58. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Houlihan Lokey

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 Houlihan Lokey's payout ratio is modest, at just 44% of profit.

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. For this reason, we're glad to see Houlihan Lokey's earnings per share have risen 20% per annum over the last five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Houlihan Lokey has delivered 20% dividend growth per year on average over the past four years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Is Houlihan Lokey worth buying for its dividend? Companies like Houlihan Lokey that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. In summary, Houlihan Lokey appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.

Wondering what the future holds for Houlihan Lokey? See what the eight analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.