Readers hoping to buy Kossan Rubber Industries Bhd (KLSE:KOSSAN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. Accordingly, Kossan Rubber Industries Bhd investors that purchase the stock on or after the 20th of June will not receive the dividend, which will be paid on the 18th of July.

The company's next dividend payment will be RM00.02 per share, on the back of last year when the company paid a total of RM0.04 to shareholders. Looking at the last 12 months of distributions, Kossan Rubber Industries Bhd has a trailing yield of approximately 1.6% on its current stock price of RM02.50. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Kossan Rubber Industries Bhd

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. Kossan Rubber Industries Bhd distributed an unsustainably high 148% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. 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's good to see that while Kossan Rubber Industries Bhd's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Kossan Rubber Industries Bhd's earnings per share have dropped 19% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.