LifeVantage Corporation (NASDAQ:LFVN) is about to trade 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. Therefore, if you purchase LifeVantage's shares on or after the 30th of November, you won't be eligible to receive the dividend, when it is paid on the 15th of December.

The company's upcoming dividend is US$0.035 a share, following on from the last 12 months, when the company distributed a total of US$0.14 per share to shareholders. Last year's total dividend payments show that LifeVantage has a trailing yield of 2.4% on the current share price of $5.8. If you buy this business for its dividend, you should have an idea of whether LifeVantage's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for LifeVantage

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. LifeVantage paid out more than half (64%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out more than half (71%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that LifeVantage'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 how much of its profit LifeVantage paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. LifeVantage's earnings per share have fallen at approximately 13% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Unfortunately LifeVantage has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

Final Takeaway

Is LifeVantage an attractive dividend stock, or better left on the shelf? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that in mind though, if the poor dividend characteristics of LifeVantage don't faze you, it's worth being mindful of the risks involved with this business. Be aware that LifeVantage is showing 4 warning signs in our investment analysis, and 2 of those don't sit too well with us...

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.