The Timken Company (NYSE:TKR) stock is about to trade ex-dividend in 3 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. 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. Meaning, you will need to purchase Timken's shares before the 18th of August to receive the dividend, which will be paid on the 28th of August.

The company's next dividend payment will be US$0.36 per share, and in the last 12 months, the company paid a total of US$1.44 per share. Calculating the last year's worth of payments shows that Timken has a trailing yield of 1.1% on the current share price of US$131.30. 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 Timken can afford its dividend, and if the dividend could grow.

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. Fortunately Timken's payout ratio is modest, at just 38% 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. Thankfully its dividend payments took up just 26% of the free cash flow it generated, which is a comfortable payout ratio.

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 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that Timken's earnings are 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Timken has increased its dividend at approximately 3.3% a year on average.

The Bottom Line

From a dividend perspective, should investors buy or avoid Timken? Earnings per share have been flat, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend gets cut. In summary, it's hard to get excited about Timken from a dividend perspective.

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

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