It looks like AMCIL Limited (ASX:AMH) is about to go ex-dividend in the next 3 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase AMCIL's shares on or after the 8th of August, you won't be eligible to receive the dividend, when it is paid on the 27th of August.

The company's next dividend payment will be AU$0.055 per share. Last year, in total, the company distributed AU$0.04 to shareholders. Based on the last year's worth of payments, AMCIL has a trailing yield of 3.5% on the current stock price of AU$1.14. If you buy this business for its dividend, you should have an idea of whether AMCIL's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

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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, AMCIL paid out 104% 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.

When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.

Check out our latest analysis for AMCIL

Click here to see how much of its profit AMCIL paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about AMCIL's flat earnings 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the AMCIL dividends are largely the same as they were 10 years ago.

The Bottom Line

Is AMCIL worth buying for its dividend? AMCIL has an uncomfortably high payout ratio, and its earnings have not grown at all. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

Although, if you're still interested in AMCIL and want to know more, you'll find it very useful to know what risks this stock faces. Case in point: We've spotted 1 warning sign for AMCIL you should be aware of.

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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.