Korvest Ltd (ASX:KOV) is about to trade ex-dividend in the next 2 days. You can purchase shares before the 20th of August in order to receive the dividend, which the company will pay on the 4th of September.

Korvest's next dividend payment will be AU$0.13 per share, on the back of last year when the company paid a total of AU$0.28 to shareholders. Based on the last year's worth of payments, Korvest stock has a trailing yield of around 5.9% on the current share price of A$4.78. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Korvest has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Korvest

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 78% 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 worried about the risk of a drop in earnings. 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. Fortunately, it paid out only 43% of its free cash flow in the past year.

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 how much of its profit Korvest paid out over the last 12 months.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Korvest has grown its earnings rapidly, up 21% a year for the past five years. Earnings per share are growing at a rapid rate, yet the company is paying out more than three-quarters of its earnings.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Korvest's dividend payments per share have declined at 1.9% per year on average over the past 10 years, which is uninspiring.

The Bottom Line

Is Korvest worth buying for its dividend? We like Korvest's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.

On that note, you'll want to research what risks Korvest is facing. Our analysis shows 3 warning signs for Korvest and you should be aware of these before buying any shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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