U.S. Physical Therapy, Inc. (NYSE:USPH) 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. 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. Therefore, if you purchase U.S. Physical Therapy's shares on or after the 22nd of May, you won't be eligible to receive the dividend, when it is paid on the 12th of June.

The company's next dividend payment will be US$0.46 per share, and in the last 12 months, the company paid a total of US$1.84 per share. Based on the last year's worth of payments, U.S. Physical Therapy has a trailing yield of 2.9% on the current stock price of US$62.81. If you buy this business for its dividend, you should have an idea of whether U.S. Physical Therapy's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's 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. Last year, U.S. Physical Therapy paid out 358% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. 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. It distributed 41% of its free cash flow as dividends, a comfortable payout level for most companies.

It's good to see that while U.S. Physical Therapy's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. 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?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by U.S. Physical Therapy's 27% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, U.S. Physical Therapy has increased its dividend at approximately 12% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. U.S. Physical Therapy is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

The Bottom Line

Is U.S. Physical Therapy an attractive dividend stock, or better left on the shelf? It's never great to see earnings per share declining, especially when a company is paying out 358% of its profit as dividends, which we feel is uncomfortably high. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in U.S. Physical Therapy's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. It's not that we think U.S. Physical Therapy is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in U.S. Physical Therapy and want to know more, you'll find it very useful to know what risks this stock faces. For example - U.S. Physical Therapy has 3 warning signs 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.