Propel Funeral Partners Limited (ASX:PFP) stock is about to trade ex-dividend in 2 days time. If you purchase the stock on or after the 5th of March, you won't be eligible to receive this dividend, when it is paid on the 6th of April.

Propel Funeral Partners's upcoming dividend is AU$0.04 a share, following on from the last 12 months, when the company distributed a total of AU$0.12 per share to shareholders. Looking at the last 12 months of distributions, Propel Funeral Partners has a trailing yield of approximately 3.4% on its current stock price of A$3.4. If you buy this business for its dividend, you should have an idea of whether Propel Funeral Partners's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Propel Funeral Partners

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Propel Funeral Partners distributed an unsustainably high 122% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. A useful secondary check can be to evaluate whether Propel Funeral Partners generated enough free cash flow to afford its dividend. Over the past year it paid out 152% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Cash is slightly more important than profit from a dividend perspective, but given Propel Funeral Partners's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For that reason, it's encouraging to see Propel Funeral Partners's earnings over the past year have risen 148%. While we'd be remiss not to point out that a year is a very short time in dividend investing, it's an encouraging sign so far. Earnings per share are increasing at a rapid rate, but the company is paying out more than we think is sustainable, based on current earnings. Generally, when a company is paying out more than it earned as dividends, it could signal either that the company is spending heavily to fund its growth, or that earnings growth is likely to slow due to lack of reinvestment.