Pactiv Evergreen Inc. (NASDAQ:PTVE) is about to trade 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 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 Pactiv Evergreen's shares on or after the 2nd of December will not receive the dividend, which will be paid on the 13th of December.

The company's next dividend payment will be US$0.10 per share, and in the last 12 months, the company paid a total of US$0.40 per share. Looking at the last 12 months of distributions, Pactiv Evergreen has a trailing yield of approximately 3.0% on its current stock price of US$13.50. If you buy this business for its dividend, you should have an idea of whether Pactiv Evergreen'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 Pactiv Evergreen

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. Pactiv Evergreen lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Dividends consumed 56% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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. Pactiv Evergreen reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

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

Remember, you can always get a snapshot of Pactiv Evergreen's financial health, by checking our visualisation of its financial health, here.

Final Takeaway

Has Pactiv Evergreen got what it takes to maintain its dividend payments? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. In summary, while it has some positive characteristics, we're not inclined to race out and buy Pactiv Evergreen today.

So if you want to do more digging on Pactiv Evergreen, you'll find it worthwhile knowing the risks that this stock faces. Case in point: We've spotted 1 warning sign for Pactiv Evergreen you should be aware of.

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.