Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Applied Materials, Inc. (NASDAQ:AMAT) is about to go ex-dividend in just four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a 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. Therefore, if you purchase Applied Materials' shares on or after the 20th of February, you won't be eligible to receive the dividend, when it is paid on the 13th of March.

The company's next dividend payment will be US$0.40 per share, and in the last 12 months, the company paid a total of US$1.60 per share. Last year's total dividend payments show that Applied Materials has a trailing yield of 0.9% on the current share price of US$169.20. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Applied Materials

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Applied Materials paid out just 21% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. The good news is it paid out just 21% of its free cash flow in the last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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. That's why it's comforting to see Applied Materials's earnings have been skyrocketing, up 22% per annum for the past five years. Applied Materials earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Applied Materials has lifted its dividend by approximately 15% 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 Applied Materials an attractive dividend stock, or better left on the shelf? We love that Applied Materials is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Overall we think this is an attractive combination and worthy of further research.

Wondering what the future holds for Applied Materials? See what the 33 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.