Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Hess Midstream LP (NYSE:HESM) is about to trade ex-dividend in the next three 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. 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. Therefore, if you purchase Hess Midstream's shares on or after the 7th of May, you won't be eligible to receive the dividend, when it is paid on the 14th of May.

The company's next dividend payment will be US$0.7792 per share, on the back of last year when the company paid a total of US$3.06 to shareholders. Based on the last year's worth of payments, Hess Midstream stock has a trailing yield of around 8.2% on the current share price of US$38.12. 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 investigate whether Hess Midstream 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. Last year, Hess Midstream paid out 103% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. 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. It distributed 48% of its free cash flow as dividends, a comfortable payout level for most companies.

It's good to see that while Hess Midstream's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

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, Hess Midstream's earnings per share have been growing at 15% 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 nine years, Hess Midstream has lifted its dividend by approximately 11% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Has Hess Midstream got what it takes to maintain its dividend payments? Earnings per share have been rising nicely although, even though its cashflow payout ratio is low, we question why Hess Midstream is paying out so much of its profit. To summarise, Hess Midstream looks okay on this analysis, although it doesn't appear a stand-out opportunity.

On that note, you'll want to research what risks Hess Midstream is facing. For example - Hess Midstream has 2 warning signs we think you should be aware of.

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.