HomeServe plc (LON:HSV) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. In other words, investors can purchase HomeServe's shares before the 1st of July in order to be eligible for the dividend, which will be paid on the 2nd of August.

The company's next dividend payment will be UK£0.20 per share, on the back of last year when the company paid a total of UK£0.26 to shareholders. Looking at the last 12 months of distributions, HomeServe has a trailing yield of approximately 2.7% on its current stock price of £9.7. If you buy this business for its dividend, you should have an idea of whether HomeServe's dividend is reliable and sustainable. As a result, readers should always check whether HomeServe has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for HomeServe

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. An unusually high payout ratio of 281% of its profit suggests something is happening other than the usual distribution of profits to shareholders. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (53%) of its free cash flow in the past year, which is within an average range for most companies.

It's good to see that while HomeServe's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by HomeServe's 14% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.