Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Iridium Communications Inc. (NASDAQ:IRDM) is about to trade ex-dividend in the next 3 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. Therefore, if you purchase Iridium Communications' shares on or after the 16th of December, you won't be eligible to receive the dividend, when it is paid on the 31st of December.

The company's upcoming dividend is US$0.14 a share, following on from the last 12 months, when the company distributed a total of US$0.56 per share to shareholders. Calculating the last year's worth of payments shows that Iridium Communications has a trailing yield of 1.8% on the current share price of US$30.29. If you buy this business for its dividend, you should have an idea of whether Iridium Communications's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Iridium Communications

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. Iridium Communications is paying out an acceptable 57% of its profit, a common payout level among most companies. 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 22% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Iridium Communications'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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Iridium Communications has grown its earnings rapidly, up 78% a year for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Iridium Communications could have strong prospects for future increases to the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Iridium Communications has delivered an average of 3.8% per year annual increase in its dividend, based on the past two years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Iridium Communications is keeping back more of its profits to grow the business.

To Sum It Up

Should investors buy Iridium Communications for the upcoming dividend? We like Iridium Communications's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks Iridium Communications is facing. Every company has risks, and we've spotted 1 warning sign for Iridium Communications you should know about.

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.