Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see OneMain Holdings, Inc. (NYSE:OMF) is about to trade ex-dividend in the next three 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 of consequence because whenever a stock is bought or sold, the trade takes at least one business day to settle. In other words, investors can purchase OneMain Holdings' shares before the 9th of May in order to be eligible for the dividend, which will be paid on the 16th of May.

The company's upcoming dividend is US$1.04 a share, following on from the last 12 months, when the company distributed a total of US$4.16 per share to shareholders. Last year's total dividend payments show that OneMain Holdings has a trailing yield of 8.4% on the current share price of US$49.35. If you buy this business for its dividend, you should have an idea of whether OneMain Holdings's dividend is reliable and sustainable. So we need to investigate whether OneMain Holdings can afford its dividend, and if the dividend could grow.

Our free stock report includes 3 warning signs investors should be aware of before investing in OneMain Holdings. Read for free now.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 88% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

View our latest analysis for OneMain Holdings

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. 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 OneMain Holdings's 5.4% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. OneMain Holdings has delivered an average of 27% per year annual increase in its dividend, based on the past six years of dividend payments. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. OneMain Holdings 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.

To Sum It Up

From a dividend perspective, should investors buy or avoid OneMain Holdings? We're not overly enthused to see OneMain Holdings's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. OneMain Holdings doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

So if you're still interested in OneMain Holdings despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For instance, we've identified 3 warning signs for OneMain Holdings (1 is a bit concerning) you should be aware of.

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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.