Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Covenant Logistics Group, Inc. (NYSE:CVLG) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date, which is the date on which a company determines the shareholders eligible 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. Thus, you can purchase Covenant Logistics Group's shares before the 7th of March in order to receive the dividend, which the company will pay on the 28th of March.

The company's next dividend payment will be US$0.07 per share, and in the last 12 months, the company paid a total of US$0.22 per share. Last year's total dividend payments show that Covenant Logistics Group has a trailing yield of 0.9% on the current share price of US$25.17. If you buy this business for its dividend, you should have an idea of whether Covenant Logistics Group's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Covenant Logistics Group

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. Covenant Logistics Group paid out just 14% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Covenant Logistics Group paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.

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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Covenant Logistics Group's earnings have been skyrocketing, up 57% per annum for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Covenant Logistics Group has delivered 21% dividend growth per year on average over the past three years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Should investors buy Covenant Logistics Group for the upcoming dividend? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. Overall, Covenant Logistics Group looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.

So while Covenant Logistics Group looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 2 warning signs with Covenant Logistics Group and understanding them should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.