It looks like Ethan Allen Interiors Inc. (NYSE:ETD) is about to go ex-dividend in the next three days. The ex-dividend date is usually set to be one business day 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. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Ethan Allen Interiors investors that purchase the stock on or after the 11th of February will not receive the dividend, which will be paid on the 26th of February.

The company's upcoming dividend is US$0.39 a share, following on from the last 12 months, when the company distributed a total of US$1.96 per share to shareholders. Calculating the last year's worth of payments shows that Ethan Allen Interiors has a trailing yield of 6.5% on the current share price of US$30.22. If you buy this business for its dividend, you should have an idea of whether Ethan Allen Interiors's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Ethan Allen Interiors

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. Ethan Allen Interiors is paying out an acceptable 64% 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. Over the last year it paid out 53% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Ethan Allen Interiors'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. That's why it's comforting to see Ethan Allen Interiors's earnings have been skyrocketing, up 20% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Ethan Allen Interiors has increased its dividend at approximately 17% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Is Ethan Allen Interiors an attractive dividend stock, or better left on the shelf? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Ethan Allen Interiors's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 64% and 53% respectively. To summarise, Ethan Allen Interiors looks okay on this analysis, although it doesn't appear a stand-out opportunity.

In light of that, while Ethan Allen Interiors has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 1 warning sign for Ethan Allen Interiors and you should be aware of this before buying any shares.

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.