Smiths Group plc (LON:SMIN) is about to trade ex-dividend in the next 3 days. 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Smiths Group's shares before the 17th of October to receive the dividend, which will be paid on the 22nd of November.

The company's upcoming dividend is UK￡0.302 a share, following on from the last 12 months, when the company distributed a total of UK￡0.44 per share to shareholders. Last year's total dividend payments show that Smiths Group has a trailing yield of 2.7% on the current share price of UK￡16.20. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Smiths Group can afford its dividend, and if the dividend could grow.

See our latest analysis for Smiths Group

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. Smiths Group is paying out an acceptable 61% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 44% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Smiths 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 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. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Smiths Group's earnings per share have been growing at 16% a year for the past five years. Smiths Group has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.