Readers hoping to buy Anglo Pacific Group plc (LON:APF) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Anglo Pacific Group's shares before the 8th of July to receive the dividend, which will be paid on the 18th of August.

The company's next dividend payment will be UK£0.037 per share, and in the last 12 months, the company paid a total of UK£0.09 per share. Looking at the last 12 months of distributions, Anglo Pacific Group has a trailing yield of approximately 6.4% on its current stock price of £1.4. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Anglo Pacific Group can afford its dividend, and if the dividend could grow.

View our latest analysis for Anglo Pacific Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Anglo Pacific Group lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Anglo Pacific Group didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Over the past year it paid out 115% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

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

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Anglo Pacific Group reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.