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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see UFO Moviez India Limited (NSE:UFO) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 17th of July, you won't be eligible to receive this dividend, when it is paid on the 23rd of August.

UFO Moviez India's next dividend payment will be ₹2.50 per share, and in the last 12 months, the company paid a total of ₹15.00 per share. Last year's total dividend payments show that UFO Moviez India has a trailing yield of 8.2% on the current share price of ₹181.9. If you buy this business for its dividend, you should have an idea of whether UFO Moviez India's dividend is reliable and sustainable. So we need to investigate whether UFO Moviez India can afford its dividend, and if the dividend could grow.

View our latest analysis for UFO Moviez India

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. UFO Moviez India paid out more than half (64%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Dividends consumed 62% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that UFO Moviez India'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 how much of its profit UFO Moviez India 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. This is why it's a relief to see UFO Moviez India earnings per share are up 6.4% per annum over the last five years.

Decent historical earnings per share growth suggests UFO Moviez India has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing. We'd also point out that UFO Moviez India issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.