Readers hoping to buy The Gorman-Rupp Company (NYSE:GRC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Gorman-Rupp's shares before the 14th of May to receive the dividend, which will be paid on the 10th of June.

The company's next dividend payment will be US$0.18 per share, and in the last 12 months, the company paid a total of US$0.72 per share. Based on the last year's worth of payments, Gorman-Rupp stock has a trailing yield of around 2.2% on the current share price of US$32.62. If you buy this business for its dividend, you should have an idea of whether Gorman-Rupp's dividend is reliable and sustainable. So we need to investigate whether Gorman-Rupp can afford its dividend, and if the dividend could grow.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Gorman-Rupp is paying out an acceptable 51% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Gorman-Rupp generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 26% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Gorman-Rupp'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?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that Gorman-Rupp's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Gorman-Rupp has increased its dividend at approximately 8.4% a year on average.

The Bottom Line

Is Gorman-Rupp an attractive dividend stock, or better left on the shelf? The payout ratios appear reasonably conservative, which implies the dividend may be somewhat sustainable. Still, with earnings basically flat, Gorman-Rupp doesn't stand out from a dividend perspective. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Gorman-Rupp's dividend merits.

With that being said, if dividends aren't your biggest concern with Gorman-Rupp, you should know about the other risks facing this business. In terms of investment risks, we've identified 1 warning sign with Gorman-Rupp and understanding them should be part of your investment process.

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.