Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that IMCD N.V. (AMS:IMCD) is about to go ex-dividend in just 4 days. 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. In other words, investors can purchase IMCD's shares before the 16th of May in order to be eligible for the dividend, which will be paid on the 21st of May.

The company's next dividend payment will be €2.24 per share. Last year, in total, the company distributed €2.24 to shareholders. Calculating the last year's worth of payments shows that IMCD has a trailing yield of 1.5% on the current share price of €147.30. 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 IMCD can afford its dividend, and if the dividend could grow.

View our latest analysis for IMCD

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately IMCD's payout ratio is modest, at just 44% of profit. A useful secondary check can be to evaluate whether IMCD generated enough free cash flow to afford its dividend. It distributed 35% of its free cash flow as dividends, a comfortable payout level for most companies.

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 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 fall far enough, the company could be forced to cut its dividend. It's encouraging to see IMCD has grown its earnings rapidly, up 22% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.