Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Ramsay Health Care Limited (ASX:RHC) is about to go ex-dividend in just 2 days. You will need to purchase shares before the 5th of March to receive the dividend, which will be paid on the 27th of March.

Ramsay Health Care's next dividend payment will be AU$0.63 per share, on the back of last year when the company paid a total of AU$1.54 to shareholders. Last year's total dividend payments show that Ramsay Health Care has a trailing yield of 2.3% on the current share price of A$68.01. 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 Ramsay Health Care can afford its dividend, and if the dividend could grow.

View our latest analysis for Ramsay Health Care

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Ramsay Health Care paid out more than half (59%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Ramsay Health Care generated enough free cash flow to afford its dividend. It paid out 81% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

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?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Ramsay Health Care's earnings per share have risen 12% per annum over the last five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. Higher earnings generally bode well for growing dividends, although with seemingly strong growth prospects we'd wonder why management are not reinvesting more in the business.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, ten years ago, Ramsay Health Care has lifted its dividend by approximately 15% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.