HRnetGroup Limited (SGX:CHZ) stock is about to trade ex-dividend in three 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase HRnetGroup's shares on or after the 4th of May, you won't be eligible to receive the dividend, when it is paid on the 12th of May.

The company's next dividend payment will be S$0.019 per share, and in the last 12 months, the company paid a total of S$0.037 per share. Last year's total dividend payments show that HRnetGroup has a trailing yield of 5.0% on the current share price of SGD0.75. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether HRnetGroup can afford its dividend, and if the dividend could grow.

See our latest analysis for HRnetGroup

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. HRnetGroup paid out 59% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether HRnetGroup generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (83%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that HRnetGroup's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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. With that in mind, we're encouraged by the steady growth at HRnetGroup, with earnings per share up 8.3% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.