It looks like Teekay Tankers Ltd. (NYSE:TNK) is about to go ex-dividend in the next 4 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Teekay Tankers' shares on or after the 12th of November, you won't be eligible to receive the dividend, when it is paid on the 22nd of November.

The company's next dividend payment will be US$0.25 per share. Last year, in total, the company distributed US$3.00 to shareholders. Based on the last year's worth of payments, Teekay Tankers has a trailing yield of 6.4% on the current stock price of US$46.70. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Teekay Tankers has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Teekay Tankers

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. Teekay Tankers has a low and conservative payout ratio of just 2.0% of its income after tax. A useful secondary check can be to evaluate whether Teekay Tankers generated enough free cash flow to afford its dividend. Luckily it paid out just 16% of its free cash flow last year.

It's positive to see that Teekay Tankers'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?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Teekay Tankers's earnings have been skyrocketing, up 41% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Teekay Tankers looks like a promising growth company.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Teekay Tankers has increased its dividend at approximately 12% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Is Teekay Tankers worth buying for its dividend? Teekay Tankers has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Teekay Tankers looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Teekay Tankers looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 2 warning signs for Teekay Tankers (1 is a bit concerning!) that deserve your attention before investing in the shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.