It looks like Smurfit Westrock Plc (NYSE:SW) is about to go 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. Accordingly, Smurfit Westrock investors that purchase the stock on or after the 15th of November will not receive the dividend, which will be paid on the 18th of December.

The company's next dividend payment will be US$0.3025 per share, and in the last 12 months, the company paid a total of US$1.21 per share. Based on the last year's worth of payments, Smurfit Westrock has a trailing yield of 2.3% on the current stock price of US$52.39. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Smurfit Westrock can afford its dividend, and if the dividend could grow.

See our latest analysis for Smurfit Westrock

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. Last year, Smurfit Westrock paid out 288% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out an unsustainably high 395% of its free cash flow as dividends over the past 12 months, which is worrying. Our definition of free cash flow excludes cash generated from asset sales, so since Smurfit Westrock is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

Cash is slightly more important than profit from a dividend perspective, but given Smurfit Westrock's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Smurfit Westrock, with earnings per share up 9.2% on average over the last five years. Earnings per share have been growing steadily, although a payout ratio this high suggests future growth is likely to slow, and the dividend may also be at risk of a cut if business enters a downturn.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Smurfit Westrock has lifted its dividend by approximately 10% 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.

To Sum It Up

Has Smurfit Westrock got what it takes to maintain its dividend payments? The dividends are not well covered by either income or free cash flow, although at least earnings per share are slowly increasing. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Although, if you're still interested in Smurfit Westrock and want to know more, you'll find it very useful to know what risks this stock faces. Be aware that Smurfit Westrock is showing 5 warning signs in our investment analysis, and 3 of those are potentially serious...

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.