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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Finning International Inc. (TSE:FTT) is about to trade ex-dividend in the next 3 days. 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 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. Accordingly, Finning International investors that purchase the stock on or after the 28th of November will not receive the dividend, which will be paid on the 12th of December.
The company's next dividend payment will be CA$0.275 per share, on the back of last year when the company paid a total of CA$1.10 to shareholders. Based on the last year's worth of payments, Finning International has a trailing yield of 2.9% on the current stock price of CA$37.92. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Finning International can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Finning International
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Finning International paid out a comfortable 33% of its profit last year. 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. It paid out 21% of its free cash flow as dividends last year, which is conservatively low.
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?
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Finning International's earnings per share have risen 19% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.