It looks like Carriage Services, Inc. (NYSE:CSV) is about to go ex-dividend in the next 3 days. You can purchase shares before the 5th of February in order to receive the dividend, which the company will pay on the 1st of March.

Carriage Services's next dividend payment will be US$0.10 per share, on the back of last year when the company paid a total of US$0.35 to shareholders. Based on the last year's worth of payments, Carriage Services has a trailing yield of 1.2% on the current stock price of $33.12. 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 check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Carriage Services

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Carriage Services paid out more than half (54%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 9.2% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Carriage Services'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?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Carriage Services's earnings per share have fallen at approximately 7.2% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Carriage Services has increased its dividend at approximately 15% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

The Bottom Line

Should investors buy Carriage Services for the upcoming dividend? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. All things considered, we are not particularly enthused about Carriage Services from a dividend perspective.

So if you want to do more digging on Carriage Services, you'll find it worthwhile knowing the risks that this stock faces. Every company has risks, and we've spotted 3 warning signs for Carriage Services (of which 1 is a bit concerning!) you should know about.

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.

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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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