Readers hoping to buy Kimball International, Inc. (NASDAQ:KBAL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 24th of September in order to be eligible for this dividend, which will be paid on the 15th of October.

Kimball International's next dividend payment will be US$0.09 per share, on the back of last year when the company paid a total of US$0.3 to shareholders. Based on the last year's worth of payments, Kimball International has a trailing yield of 1.6% on the current stock price of $20.02. 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.

Check out our latest analysis for Kimball International

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. Fortunately Kimball International's payout ratio is modest, at just 30% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 26% of its free cash flow as dividends, a comfortable payout level 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 Kimball International paid out over the last 12 months.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Kimball International's earnings have been skyrocketing, up 64% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Kimball International's dividend payments per share have declined at 6.7% per year on average over the past ten years, which is uninspiring. Kimball International is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

To Sum It Up

Has Kimball International got what it takes to maintain its dividend payments? Kimball International has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past ten years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.

Want to learn more about Kimball International's dividend performance? Check out this visualisation of its historical revenue and earnings growth.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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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. Thank you for reading.