Readers hoping to buy FIH group plc (LON:FIH) 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. Therefore, if you purchase FIH group's shares on or after the 1st of December, you won't be eligible to receive the dividend, when it is paid on the 13th of January.

The company's next dividend payment will be UK£0.012 per share, and in the last 12 months, the company paid a total of UK£0.04 per share. Looking at the last 12 months of distributions, FIH group has a trailing yield of approximately 1.3% on its current stock price of £2.4. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for FIH group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately FIH group's payout ratio is modest, at just 26% of profit. A useful secondary check can be to evaluate whether FIH group generated enough free cash flow to afford its dividend. Luckily it paid out just 5.1% of its free cash flow last year.

It's positive to see that FIH group'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 FIH group paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about FIH group's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Recent earnings growth has been limited. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.