Redrow plc (LON:RDW) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Redrow's shares before the 23rd of February to receive the dividend, which will be paid on the 6th of April.

The company's next dividend payment will be UK£0.10 per share. Last year, in total, the company distributed UK£0.32 to shareholders. Looking at the last 12 months of distributions, Redrow has a trailing yield of approximately 6.3% on its current stock price of £5.115. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Redrow

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Redrow is paying out an acceptable 59% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Redrow generated enough free cash flow to afford its dividend. Redrow paid out more free cash flow than it generated - 150%, to be precise - last year, which we think is concerningly 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.

Redrow paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Redrow's ability to maintain its dividend.

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Redrow's earnings per share have fallen at approximately 5.0% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Redrow has delivered 46% dividend growth per year on average over the past nine years. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.