It looks like The Timken Company (NYSE:TKR) is about to go ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Timken's shares before the 19th of November in order to be eligible for the dividend, which will be paid on the 29th of November.

The company's next dividend payment will be US$0.34 per share. Last year, in total, the company distributed US$1.36 to shareholders. Calculating the last year's worth of payments shows that Timken has a trailing yield of 1.8% on the current share price of US$74.96. 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! So we need to investigate whether Timken can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Timken

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Timken paid out a comfortable 28% of its profit last year. A useful secondary check can be to evaluate whether Timken generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 37% 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?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Timken earnings per share are up 4.3% per annum over the last five years. Recent earnings growth has been limited. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Timken has delivered an average of 4.0% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

From a dividend perspective, should investors buy or avoid Timken? Earnings per share have been growing moderately, and Timken is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Timken is being conservative with its dividend payouts and could still perform reasonably over the long run. Overall we think this is an attractive combination and worthy of further research.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. We've identified 2 warning signs with Timken (at least 1 which makes us a bit uncomfortable), and understanding them should be part of your investment process.

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.