Readers hoping to buy Colgate-Palmolive Company (NYSE:CL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Colgate-Palmolive's shares before the 20th of July in order to receive the dividend, which the company will pay on the 15th of August.

The company's next dividend payment will be US$0.47 per share, and in the last 12 months, the company paid a total of US$1.88 per share. Looking at the last 12 months of distributions, Colgate-Palmolive has a trailing yield of approximately 2.4% on its current stock price of $78.15. 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 investigate whether Colgate-Palmolive can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Colgate-Palmolive

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Colgate-Palmolive paid out 74% of its earnings to investors last year, a normal payout level for most businesses. 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 last year it paid out 66% of its free cash flow as dividends, within the usual range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. 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 not ideal to see Colgate-Palmolive's earnings per share have been shrinking at 2.3% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Colgate-Palmolive has delivered an average of 4.9% per year annual increase in its dividend, based on the past 10 years of dividend payments. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.