Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Garrett Motion Inc. (NASDAQ:GTX) is about to trade ex-dividend in the next 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. This means that investors who purchase Garrett Motion's shares on or after the 1st of June will not receive the dividend, which will be paid on the 15th of June.

The company's upcoming dividend is US$0.08 a share, following on from the last 12 months, when the company distributed a total of US$0.32 per share to shareholders. Based on the last year's worth of payments, Garrett Motion stock has a trailing yield of around 1.0% on the current share price of US$33.30. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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. Garrett Motion has a low and conservative payout ratio of just 16% of its income after tax. A useful secondary check can be to evaluate whether Garrett Motion generated enough free cash flow to afford its dividend. Luckily it paid out just 15% of its free cash flow last year.

It's positive to see that Garrett Motion'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?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Garrett Motion's earnings per share have been growing at 12% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

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

To Sum It Up

Has Garrett Motion got what it takes to maintain its dividend payments? Garrett Motion has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Garrett Motion looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently 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.