Johnson & Johnson (NYSE:JNJ) stock is about to trade ex-dividend in four 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Johnson & Johnson's shares before the 18th of February to receive the dividend, which will be paid on the 4th of March.

The company's upcoming dividend is US$1.24 a share, following on from the last 12 months, when the company distributed a total of US$4.96 per share to shareholders. Last year's total dividend payments show that Johnson & Johnson has a trailing yield of 3.2% on the current share price of US$155.26. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Johnson & Johnson can afford its dividend, and if the dividend could grow.

See our latest analysis for Johnson & Johnson

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. It paid out 85% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that Johnson & Johnson's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. A high payout ratio of 85% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Johnson & Johnson could be signalling that its future growth prospects are thin.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Johnson & Johnson has delivered an average of 5.9% per year annual increase in its dividend, based on the past 10 years of dividend payments.

The Bottom Line

Should investors buy Johnson & Johnson for the upcoming dividend? Johnson & Johnson's earnings are effectively flat over recent years, even as the company pays out more than half of its earnings to shareholders as dividends. We think this is a pretty attractive combination, and would be interested in investigating Johnson & Johnson more closely.

Wondering what the future holds for Johnson & Johnson? See what the 18 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.