It looks like Shoe Zone plc (LON:SHOE) is about to go ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 27th of February will not receive the dividend, which will be paid on the 18th of March.

Shoe Zone's upcoming dividend is UK£0.08 a share, following on from the last 12 months, when the company distributed a total of UK£0.12 per share to shareholders. Based on the last year's worth of payments, Shoe Zone stock has a trailing yield of around 6.1% on the current share price of £1.89. If you buy this business for its dividend, you should have an idea of whether Shoe Zone's dividend is reliable and sustainable. As a result, readers should always check whether Shoe Zone has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Shoe Zone

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year, Shoe Zone paid out 101% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. 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. Over the past year it paid out 179% 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.

Shoe Zone does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Cash is slightly more important than profit from a dividend perspective, but given Shoe Zone'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 how much of its profit Shoe Zone paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Shoe Zone's earnings per share have dropped 6.6% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.