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 OneSpaWorld Holdings Limited (NASDAQ:OSW) is about to go ex-dividend in just four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase OneSpaWorld Holdings' shares on or after the 20th of November will not receive the dividend, which will be paid on the 4th of December.

The company's next dividend payment will be US$0.04 per share. Last year, in total, the company distributed US$0.16 to shareholders. Based on the last year's worth of payments, OneSpaWorld Holdings stock has a trailing yield of around 0.9% on the current share price of US$18.79. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether OneSpaWorld Holdings can afford its dividend, and if the dividend could grow.

View our latest analysis for OneSpaWorld Holdings

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. OneSpaWorld Holdings is paying out just 8.0% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 5.7% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that OneSpaWorld Holdings'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?

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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see OneSpaWorld Holdings's earnings have been skyrocketing, up 25% per annum for the past five years. OneSpaWorld Holdings earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the OneSpaWorld Holdings dividends are largely the same as they were five years ago.

To Sum It Up

Is OneSpaWorld Holdings an attractive dividend stock, or better left on the shelf? OneSpaWorld Holdings has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.

In light of that, while OneSpaWorld Holdings has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 2 warning signs for OneSpaWorld Holdings that we recommend you consider before investing in the business.

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.