IRADIMED CORPORATION (NASDAQ:IRMD) stock is about to trade ex-dividend in three 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase IRADIMED's shares on or after the 20th of August, you won't be eligible to receive the dividend, when it is paid on the 30th of August.

The company's next dividend payment will be US$0.15 per share, on the back of last year when the company paid a total of US$1.08 to shareholders. Calculating the last year's worth of payments shows that IRADIMED has a trailing yield of 2.4% on the current share price of US$45.13. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether IRADIMED has been able to grow its dividends, or if the dividend might be cut.

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. IRADIMED paid out just 20% 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. Over the last year, it paid out more than three-quarters (76%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see IRADIMED has grown its earnings rapidly, up 20% a year for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. IRADIMED has delivered an average of 1.4% per year annual increase in its dividend, based on the past two years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because IRADIMED is keeping back more of its profits to grow the business.

The Bottom Line

Has IRADIMED got what it takes to maintain its dividend payments? Earnings per share have grown at a nice rate in recent times and over the last year, IRADIMED paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about IRADIMED, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks IRADIMED is facing. To that end, you should learn about the 3 warning signs we've spotted with IRADIMED (including 1 which is concerning).

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.