It looks like Akzo Nobel India Limited (NSE:AKZOINDIA) is about to go ex-dividend in the next 3 days. You will need to purchase shares before the 31st of July to receive the dividend, which will be paid on the 22nd of August.

Akzo Nobel India's next dividend payment will be ₹24.00 per share, on the back of last year when the company paid a total of ₹24.00 to shareholders. Calculating the last year's worth of payments shows that Akzo Nobel India has a trailing yield of 1.4% on the current share price of ₹1726.35. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Akzo Nobel India has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Akzo Nobel India

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. Akzo Nobel India is paying out an acceptable 52% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The company paid out 103% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want look more closely here.

Akzo Nobel India paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Akzo Nobel India to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Akzo Nobel India earnings per share are up 7.4% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.