Readers hoping to buy nib holdings limited (ASX:NHF) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 5th of March, you won't be eligible to receive this dividend, when it is paid on the 7th of April.

nib holdings's next dividend payment will be AU$0.10 per share, and in the last 12 months, the company paid a total of AU$0.23 per share. Looking at the last 12 months of distributions, nib holdings has a trailing yield of approximately 5.0% on its current stock price of A$4.63. If you buy this business for its dividend, you should have an idea of whether nib holdings's dividend is reliable and sustainable. As a result, readers should always check whether nib holdings has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for nib holdings

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. Its dividend payout ratio is 79% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. 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 nib holdings's earnings per share have risen 13% per annum over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past ten years, nib holdings has increased its dividend at approximately 23% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Should investors buy nib holdings for the upcoming dividend? Earnings per share are growing nicely, and nib holdings is paying out a percentage of its earnings that is around the average for dividend-paying stocks. We think this is a pretty attractive combination, and would be interested in investigating nib holdings more closely.