Readers hoping to buy SRG Global Limited (ASX:SRG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase SRG Global's shares before the 13th of March in order to receive the dividend, which the company will pay on the 11th of April.

The company's next dividend payment will be AU$0.025 per share. Last year, in total, the company distributed AU$0.05 to shareholders. Based on the last year's worth of payments, SRG Global has a trailing yield of 4.1% on the current stock price of AU$1.22. If you buy this business for its dividend, you should have an idea of whether SRG Global's dividend is reliable and sustainable. As a result, readers should always check whether SRG Global has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for SRG Global

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. SRG Global paid out more than half (72%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether SRG Global generated enough free cash flow to afford its dividend. Fortunately, it paid out only 35% of its free cash flow in the past 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?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see SRG Global has grown its earnings rapidly, up 22% a year for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, SRG Global could have strong prospects for future increases to the dividend.

We'd also point out that SRG Global issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, six years ago, SRG Global has lifted its dividend by approximately 16% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Has SRG Global got what it takes to maintain its dividend payments? We like SRG Global's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. There's a lot to like about SRG Global, and we would prioritise taking a closer look at it.

While it's tempting to invest in SRG Global for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 2 warning signs with SRG Global and understanding them should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.