LCI Industries (NYSE:LCII) stock is about to trade ex-dividend in 4 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. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase LCI Industries' shares on or after the 7th of March, you won't be eligible to receive the dividend, when it is paid on the 21st of March.

The company's next dividend payment will be US$1.15 per share, on the back of last year when the company paid a total of US$4.60 to shareholders. Based on the last year's worth of payments, LCI Industries has a trailing yield of 4.4% on the current stock price of US$103.82. If you buy this business for its dividend, you should have an idea of whether LCI Industries's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for LCI Industries

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. Its dividend payout ratio is 77% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether LCI Industries generated enough free cash flow to afford its dividend. Fortunately, it paid out only 33% of its free cash flow in the past year.

It's positive to see that LCI Industries'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 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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that LCI Industries's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. LCI Industries has delivered 16% dividend growth per year on average over the past nine years.

The Bottom Line

From a dividend perspective, should investors buy or avoid LCI Industries? We're not enthused by the flat earnings per share, although at least the company's payout ratio is within reasonable bounds. Additionally, it paid out a lower percentage of its free cash flow, so at least it generated more cash than it spent on dividends. To summarise, LCI Industries looks okay on this analysis, although it doesn't appear a stand-out opportunity.

So if you want to do more digging on LCI Industries, you'll find it worthwhile knowing the risks that this stock faces. Every company has risks, and we've spotted 1 warning sign for LCI Industries you should know about.

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.

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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.