Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Spark New Zealand Limited (NZSE:SPK) is about to trade ex-dividend in the next four 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. 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. Therefore, if you purchase Spark New Zealand's shares on or after the 21st of March, you won't be eligible to receive the dividend, when it is paid on the 5th of April.

The company's next dividend payment will be NZ$0.1588235 per share, on the back of last year when the company paid a total of NZ$0.27 to shareholders. Looking at the last 12 months of distributions, Spark New Zealand has a trailing yield of approximately 5.5% on its current stock price of NZ$4.90. 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 Spark New Zealand can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Spark New Zealand

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Spark New Zealand paid out 117% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. 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 paid out an unsustainably high 343% of its free cash flow as dividends over the past 12 months, which is worrying. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

Cash is slightly more important than profit from a dividend perspective, but given Spark New Zealand's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Spark New Zealand earnings per share are up 3.4% per annum over the last five years. With limited earnings growth and paying out a concerningly high percentage of its earnings, the prospects of future dividend growth don't look so bright here.