It looks like Lycopodium Limited (ASX:LYL) is about to go ex-dividend in the next 3 days. You can purchase shares before the 30th of March in order to receive the dividend, which the company will pay on the 9th of April.

Lycopodium's next dividend payment will be AU$0.15 per share, and in the last 12 months, the company paid a total of AU$0.30 per share. Based on the last year's worth of payments, Lycopodium has a trailing yield of 7.6% on the current stock price of A$3.94. 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! We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Lycopodium

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Lycopodium paid out 71% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Lycopodium generated enough free cash flow to afford its dividend. The good news is it paid out just 15% of its free cash flow in the last year.

It's positive to see that Lycopodium'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?

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. It's encouraging to see Lycopodium has grown its earnings rapidly, up 34% a year for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Lycopodium has delivered 1.8% dividend growth per year on average over the past ten years. Earnings per share have been growing much quicker than dividends, potentially because Lycopodium is keeping back more of its profits to grow the business.