Readers hoping to buy Inghams Group Limited (ASX:ING) 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Inghams Group's shares on or after the 14th of March will not receive the dividend, which will be paid on the 5th of April.

The company's next dividend payment will be AU$0.12 per share, and in the last 12 months, the company paid a total of AU$0.24 per share. Calculating the last year's worth of payments shows that Inghams Group has a trailing yield of 6.5% on the current share price of AU$3.68. If you buy this business for its dividend, you should have an idea of whether Inghams Group's dividend is reliable and sustainable. So we need to investigate whether Inghams Group can afford its dividend, and if the dividend could grow.

View our latest analysis for Inghams Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 77% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 20% of its cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that Inghams Group's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Inghams Group has delivered an average of 24% per year annual increase in its dividend, based on the past seven years of dividend payments.

The Bottom Line

Should investors buy Inghams Group for the upcoming dividend? The payout ratios appear reasonably conservative, which implies the dividend may be somewhat sustainable. Still, with earnings basically flat, Inghams Group doesn't stand out from a dividend perspective. In summary, while it has some positive characteristics, we're not inclined to race out and buy Inghams Group today.

However if you're still interested in Inghams Group as a potential investment, you should definitely consider some of the risks involved with Inghams Group. To help with this, we've discovered 2 warning signs for Inghams Group (1 is a bit unpleasant!) that you ought to be aware of before buying the shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.