It looks like Ethan Allen Interiors Inc. (NYSE:ETD) is about to go ex-dividend in the next 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. Meaning, you will need to purchase Ethan Allen Interiors' shares before the 13th of August to receive the dividend, which will be paid on the 29th of August.

The company's next dividend payment will be US$0.79 per share, on the back of last year when the company paid a total of US$1.96 to shareholders. Based on the last year's worth of payments, Ethan Allen Interiors has a trailing yield of 6.5% on the current stock price of US$30.03. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Ethan Allen Interiors is paying out an acceptable 59% of its profit, a common payout level among most companies.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Ethan Allen Interiors's earnings have been skyrocketing, up 21% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Ethan Allen Interiors has delivered 17% dividend growth per year on average over the past 10 years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Is Ethan Allen Interiors worth buying for its dividend? Ethan Allen Interiors has an acceptable payout ratio and its earnings per share have been improving at a decent rate. Overall, Ethan Allen Interiors looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.

On that note, you'll want to research what risks Ethan Allen Interiors is facing. For example, we've found 2 warning signs for Ethan Allen Interiors (1 is potentially serious!) that deserve your attention before investing in the shares.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.