CSL Limited (ASX:CSL) stock is about to trade ex-dividend in 2 days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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 CSL's shares before the 10th of March to receive the dividend, which will be paid on the 9th of April.

The company's next dividend payment will be US$1.30 per share. Last year, in total, the company distributed US$2.64 to shareholders. Last year's total dividend payments show that CSL has a trailing yield of 1.6% on the current share price of AU$262.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for CSL

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. That's why it's good to see CSL paying out a modest 48% of its earnings. 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. Dividends consumed 68% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that CSL'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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at CSL, with earnings per share up 6.0% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, CSL has lifted its dividend by approximately 8.2% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Has CSL got what it takes to maintain its dividend payments? Earnings per share have been growing at a steady rate, and CSL paid out less than half its profits and more than half its free cash flow as dividends over the last year. To summarise, CSL looks okay on this analysis, although it doesn't appear a stand-out opportunity.

So while CSL looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - CSL has 1 warning sign we think you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.