Washington H. Soul Pattinson and Company Limited (ASX:SOL) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 21st of April will not receive this dividend, which will be paid on the 14th of May.

Washington H. Soul Pattinson's upcoming dividend is AU$0.26 a share, following on from the last 12 months, when the company distributed a total of AU$0.60 per share to shareholders. Looking at the last 12 months of distributions, Washington H. Soul Pattinson has a trailing yield of approximately 1.8% on its current stock price of A$33.11. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Washington H. Soul Pattinson

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. Washington H. Soul Pattinson is paying out just 15% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (64%) 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 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. That's why it's comforting to see Washington H. Soul Pattinson's earnings have been skyrocketing, up 63% per annum for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Washington H. Soul Pattinson has increased its dividend at approximately 5.8% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

The Bottom Line

Should investors buy Washington H. Soul Pattinson for the upcoming dividend? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Washington H. Soul Pattinson looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Washington H. Soul Pattinson is facing. Case in point: We've spotted 1 warning sign for Washington H. Soul Pattinson you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.