Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see CNH Industrial N.V. (NYSE:CNH) is about to trade ex-dividend in the next 2 days. The ex-dividend date occurs one day before the record date, which is the day on which shareholders need to be on the company's books in order 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. Accordingly, CNH Industrial investors that purchase the stock on or after the 21st of May will not receive the dividend, which will be paid on the 29th of May.

The company's next dividend payment will be US$0.10 per share, and in the last 12 months, the company paid a total of US$0.10 per share. Based on the last year's worth of payments, CNH Industrial stock has a trailing yield of around 1.0% on the current share price of US$10.43. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether CNH Industrial has been able to grow its dividends, or if the dividend might be cut.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately CNH Industrial's payout ratio is modest, at just 32% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 25% of its free cash flow as dividends last year, which is conservatively low.

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?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that CNH Industrial's earnings are down 3.6% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. CNH Industrial's dividend payments per share have declined at 7.4% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

Has CNH Industrial got what it takes to maintain its dividend payments? CNH Industrial has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. To summarise, CNH Industrial looks okay on this analysis, although it doesn't appear a stand-out opportunity.

While it's tempting to invest in CNH Industrial for the dividends alone, you should always be mindful of the risks involved.

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

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.