Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see PHINIA Inc. (NYSE:PHIN) is about to trade ex-dividend in the next four 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 as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase PHINIA's shares before the 25th of November in order to be eligible for the dividend, which will be paid on the 13th of December.

The company's next dividend payment will be US$0.25 per share, on the back of last year when the company paid a total of US$1.00 to shareholders. Looking at the last 12 months of distributions, PHINIA has a trailing yield of approximately 1.9% on its current stock price of US$52.11. If you buy this business for its dividend, you should have an idea of whether PHINIA's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for PHINIA

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see PHINIA paying out a modest 42% of its earnings. A useful secondary check can be to evaluate whether PHINIA generated enough free cash flow to afford its dividend. Luckily it paid out just 25% of its free cash flow last year.

It's positive to see that PHINIA'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 falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see PHINIA's earnings per share have dropped 23% a year over the past three years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Given that PHINIA has only been paying a dividend for a year, there's not much of a past history to draw insight from.

The Bottom Line

Has PHINIA got what it takes to maintain its dividend payments? PHINIA has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. All things considered, we are not particularly enthused about PHINIA from a dividend perspective.

Wondering what the future holds for PHINIA? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.