Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Simpson Manufacturing Co., Inc. (NYSE:SSD) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 1st of April in order to receive the dividend, which the company will pay on the 23rd of April.

Simpson Manufacturing's next dividend payment will be US$0.23 per share, on the back of last year when the company paid a total of US$0.92 to shareholders. Based on the last year's worth of payments, Simpson Manufacturing stock has a trailing yield of around 1.5% on the current share price of $59.83. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Simpson Manufacturing can afford its dividend, and if the dividend could grow.

View our latest analysis for Simpson Manufacturing

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. Simpson Manufacturing paid out a comfortable 30% of its profit last year. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 24% of its cash flow 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?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Simpson Manufacturing's earnings per share have been growing at 18% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Simpson Manufacturing has delivered an average of 8.7% per year annual increase in its dividend, based on the past ten years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is Simpson Manufacturing worth buying for its dividend? Simpson Manufacturing has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about Simpson Manufacturing, and we would prioritise taking a closer look at it.

So while Simpson Manufacturing looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 1 warning sign for Simpson Manufacturing and you should be aware of this before buying any shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.