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 Build-A-Bear Workshop, Inc. (NYSE:BBW) is about to go ex-dividend in just four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Accordingly, Build-A-Bear Workshop investors that purchase the stock on or after the 27th of November will not receive the dividend, which will be paid on the 9th of January.

The company's upcoming dividend is US$0.20 a share, following on from the last 12 months, when the company distributed a total of US$0.80 per share to shareholders. Calculating the last year's worth of payments shows that Build-A-Bear Workshop has a trailing yield of 2.2% on the current share price of US$36.70. If you buy this business for its dividend, you should have an idea of whether Build-A-Bear Workshop's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Build-A-Bear Workshop paid out just 11% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. What's good is that dividends were well covered by free cash flow, with the company paying out 21% of its cash flow last year.

It's positive to see that Build-A-Bear Workshop's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Build-A-Bear Workshop has grown its earnings rapidly, up 52% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Build-A-Bear Workshop looks like a promising growth company.

Given that Build-A-Bear Workshop has only been paying a dividend for a year, there's not much of a past history to draw insight from.

Final Takeaway

Has Build-A-Bear Workshop got what it takes to maintain its dividend payments? Build-A-Bear Workshop has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about Build-A-Bear Workshop, and we would prioritise taking a closer look at it.

While it's tempting to invest in Build-A-Bear Workshop for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 2 warning signs for Build-A-Bear Workshop (of which 1 can't be ignored!) 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.