Readers hoping to buy AJ Bell plc (LON:AJB) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 7th of January will not receive this dividend, which will be paid on the 5th of February.

AJ Bell's next dividend payment will be UK£0.047 per share, on the back of last year when the company paid a total of UK£0.062 to shareholders. Based on the last year's worth of payments, AJ Bell has a trailing yield of 1.4% on the current stock price of £4.335. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for AJ Bell

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. AJ Bell paid out more than half (65%) of its earnings last year, which is a regular payout ratio for most companies.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

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

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. 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 AJ Bell's earnings have been skyrocketing, up 25% per annum for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. AJ Bell has delivered 43% dividend growth per year on average over the past two years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Should investors buy AJ Bell for the upcoming dividend? AJ Bell has an acceptable payout ratio and its earnings per share have been improving at a decent rate. Overall, AJ Bell looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.

So while AJ Bell looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 1 warning sign with AJ Bell and understanding them should be part of your investment process.

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.

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.

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