Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Nelnet, Inc. (NYSE:NNI) is about to go ex-dividend in just 4 days. The ex-dividend date occurs one day 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Nelnet's shares before the 31st of May to receive the dividend, which will be paid on the 14th of June.

The company's next dividend payment will be US$0.28 per share, on the back of last year when the company paid a total of US$1.12 to shareholders. Based on the last year's worth of payments, Nelnet stock has a trailing yield of around 1.1% on the current share price of US$105.68. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

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. That's why it's good to see Nelnet paying out a modest 29% of its earnings.

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.

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Nelnet's earnings per share have fallen at approximately 7.4% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Nelnet has lifted its dividend by approximately 11% a year on average.

To Sum It Up

Has Nelnet got what it takes to maintain its dividend payments? Nelnet's earnings per share are down over the past five years, although it has the cushion of a low payout ratio, which would suggest a cut to the dividend is relatively unlikely. We're unconvinced on the company's merits, and think there might be better opportunities out there.

However if you're still interested in Nelnet as a potential investment, you should definitely consider some of the risks involved with Nelnet. For example, Nelnet has 2 warning signs (and 1 which is a bit concerning) we think 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.