It looks like Utz Brands, Inc. (NYSE:UTZ) is about to go ex-dividend in the next 2 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 a full business day. 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 Utz Brands' shares before the 7th of April to receive the dividend, which will be paid on the 24th of April.

The company's next dividend payment will be US$0.072 per share, on the back of last year when the company paid a total of US$0.24 to shareholders. Looking at the last 12 months of distributions, Utz Brands has a trailing yield of approximately 1.7% on its current stock price of US$14.29. 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 Utz Brands can afford its dividend, and if the dividend could grow.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Utz Brands distributed an unsustainably high 122% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out more than three-quarters (87%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Utz Brands fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Utz Brands has grown its earnings rapidly, up 43% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last five years, Utz Brands has lifted its dividend by approximately 4.1% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

The Bottom Line

From a dividend perspective, should investors buy or avoid Utz Brands? Utz Brands has been growing its earnings per share nicely, although judging by the difference between its profit and cashflow payout ratios, the company might have reported some write-offs over the last year. All things considered, we are not particularly enthused about Utz Brands from a dividend perspective.

If you're not too concerned about Utz Brands's ability to pay dividends, you should still be mindful of some of the other risks that this business faces.

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.