Flutter Entertainment PLC (ISE:FLTR) stock is about to trade ex-dividend in 3 days time. You will need to purchase shares before the 5th of September to receive the dividend, which will be paid on the 9th of October.

Flutter Entertainment's next dividend payment will be UK£0.67 per share, and in the last 12 months, the company paid a total of UK£2.00 per share. Based on the last year's worth of payments, Flutter Entertainment stock has a trailing yield of around 3.0% on the current share price of €74.84. If you buy this business for its dividend, you should have an idea of whether Flutter Entertainment's dividend is reliable and sustainable. As a result, readers should always check whether Flutter Entertainment has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Flutter Entertainment

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. It paid out 84% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. A useful secondary check can be to evaluate whether Flutter Entertainment generated enough free cash flow to afford its dividend. It paid out more than half (60%) of its free cash flow in the past year, which is within an average 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?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Flutter Entertainment's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. A payout ratio of 84% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Flutter Entertainment has lifted its dividend by approximately 15% a year on average.

Final Takeaway

Should investors buy Flutter Entertainment for the upcoming dividend? Earnings per share have barely grown, and although Flutter Entertainment paid out over half its earnings and free cash flow last year, the payout ratios are within a normal range for most companies. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Flutter Entertainment's dividend merits.

Ever wonder what the future holds for Flutter Entertainment? See what the 11 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.