Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Voltamp Transformers Limited (NSE:VOLTAMP) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 5th of August in order to receive the dividend, which the company will pay on the 13th of September.

Voltamp Transformers's next dividend payment will be ₹22.50 per share, which looks like a nice increase on last year, when the company distributed a total of ₹15.00 to shareholders. If you buy this business for its dividend, you should have an idea of whether Voltamp Transformers's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Voltamp Transformers

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. Voltamp Transformers has a low and conservative payout ratio of just 18% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out more than three-quarters (85%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Voltamp Transformers'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. That's why it's comforting to see Voltamp Transformers's earnings have been skyrocketing, up 26% per annum for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Voltamp Transformers has delivered 1.8% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because Voltamp Transformers is keeping back more of its profits to grow the business.

To Sum It Up

From a dividend perspective, should investors buy or avoid Voltamp Transformers? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. It's a promising combination that should mark this company worthy of closer attention.

Ever wonder what the future holds for Voltamp Transformers? See what the four analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.