Jerash Holdings (US), Inc. (NASDAQ:JRSH) stock is about to trade ex-dividend in two days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. Meaning, you will need to purchase Jerash Holdings (US)'s shares before the 17th of August to receive the dividend, which will be paid on the 24th of August.

The company's next dividend payment will be US$0.05 per share, and in the last 12 months, the company paid a total of US$0.20 per share. Calculating the last year's worth of payments shows that Jerash Holdings (US) has a trailing yield of 3.8% on the current share price of US$5.33. 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 Jerash Holdings (US) can afford its dividend, and if the dividend could grow.

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Jerash Holdings (US) is paying out an acceptable 52% of its profit, a common payout level among most companies. 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. Thankfully its dividend payments took up just 38% 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about Jerash Holdings (US)'s flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Jerash Holdings (US)'s dividend payments are effectively flat on where they were eight years ago.

Final Takeaway

Should investors buy Jerash Holdings (US) for the upcoming dividend? Earnings per share have been flat and Jerash Holdings (US)'s dividend payouts are within reasonable limits; without a sharp decline in earnings we feel that the dividend is likely somewhat sustainable. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Jerash Holdings (US)'s dividend merits.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example - Jerash Holdings (US) 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.