It looks like SinterCast AB (publ) (STO:SINT) is about to go ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 26th of November will not receive this dividend, which will be paid on the 2nd of December.

SinterCast's upcoming dividend is kr2.50 a share, following on from the last 12 months, when the company distributed a total of kr3.50 per share to shareholders. Based on the last year's worth of payments, SinterCast has a trailing yield of 2.3% on the current stock price of SEK151. 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! We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for SinterCast

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. SinterCast is paying out an acceptable 53% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (54%) of its free cash flow in the past year, which is within an average range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit SinterCast paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see SinterCast's earnings have been skyrocketing, up 42% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, SinterCast could have strong prospects for future increases to the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last nine years, SinterCast has lifted its dividend by approximately 24% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

From a dividend perspective, should investors buy or avoid SinterCast? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. However, we'd also note that SinterCast is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. All things considered, we are not particularly enthused about SinterCast from a dividend perspective.

Keen to explore more data on SinterCast's financial performance? Check out our visualisation of its historical revenue and earnings growth.

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.

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