Readers hoping to buy Flowco Holdings Inc. (NYSE:FLOC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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 Flowco Holdings' shares before the 15th of May to receive the dividend, which will be paid on the 27th of May.

The company's next dividend payment will be US$0.09 per share, and in the last 12 months, the company paid a total of US$0.36 per share. Looking at the last 12 months of distributions, Flowco Holdings has a trailing yield of approximately 1.4% on its current stock price of US$24.84. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Flowco Holdings is paying out just 21% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. Thankfully its dividend payments took up just 40% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Flowco Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. From this perspective, we're disturbed to see earnings per share plunged 44% over the last 12 months, and we'd wonder if the company has had some kind of major event that has skewed the calculation.

Given that Flowco Holdings has only been paying a dividend for a year, there's not much of a past history to draw insight from.

Final Takeaway

Should investors buy Flowco Holdings for the upcoming dividend? Flowco Holdings 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. Overall, it's hard to get excited about Flowco Holdings from a dividend perspective.

So while Flowco Holdings looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - Flowco Holdings has 1 warning sign we think you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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.