Washington H. Soul Pattinson and Company Limited (ASX:SOL) is about to trade ex-dividend in the next 2 days. Investors can purchase shares before the 22nd of April in order to be eligible for this dividend, which will be paid on the 14th of May.

Washington H. Soul Pattinson's next dividend payment will be AU$0.25 per share. Last year, in total, the company distributed AU$0.58 to shareholders. Looking at the last 12 months of distributions, Washington H. Soul Pattinson has a trailing yield of approximately 3.1% on its current stock price of A$18.87. 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.

View our latest analysis for Washington H. Soul Pattinson

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Washington H. Soul Pattinson distributed an unsustainably high 118% 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 Washington H. Soul Pattinson generated enough free cash flow to afford its dividend. Washington H. Soul Pattinson paid out more free cash flow than it generated - 182%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

As Washington H. Soul Pattinson's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Washington H. Soul Pattinson's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last ten years, Washington H. Soul Pattinson has lifted its dividend by approximately 6.1% a year on average.

The Bottom Line

Should investors buy Washington H. Soul Pattinson for the upcoming dividend? Not only are earnings per share flat, but Washington H. Soul Pattinson is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Washington H. Soul Pattinson.

Although, if you're still interested in Washington H. Soul Pattinson and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 3 warning signs for Washington H. Soul Pattinson that you should be aware of before investing in their shares.

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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