Readers hoping to buy EJF Investments Limited (LON:EJFI) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase EJF Investments' shares before the 7th of November in order to be eligible for the dividend, which will be paid on the 29th of November.

The company's next dividend payment will be UK£0.02675 per share. Last year, in total, the company distributed UK£0.11 to shareholders. Based on the last year's worth of payments, EJF Investments stock has a trailing yield of around 9.3% on the current share price of UK£1.145. 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.

View our latest analysis for EJF Investments

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. EJF Investments distributed an unsustainably high 125% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious.

When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.

Click here to see how much of its profit EJF Investments paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see EJF Investments's earnings per share have dropped 15% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. EJF Investments has delivered an average of 1.4% per year annual increase in its dividend, based on the past eight years of dividend payments.

Final Takeaway

Should investors buy EJF Investments for the upcoming dividend? Not only are earnings per share shrinking, but EJF Investments is paying out a disconcertingly high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.