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 LyondellBasell Industries N.V. (NYSE:LYB) is about to go ex-dividend in just 3 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 LyondellBasell Industries' shares before the 26th of August to receive the dividend, which will be paid on the 3rd of September.

The company's upcoming dividend is US$1.34 a share, following on from the last 12 months, when the company distributed a total of US$5.36 per share to shareholders. Last year's total dividend payments show that LyondellBasell Industries has a trailing yield of 5.5% on the current share price of US$96.91. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. LyondellBasell Industries is paying out an acceptable 71% of its profit, a common payout level among 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. Over the last year it paid out 65% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that LyondellBasell Industries'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 with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see LyondellBasell Industries's earnings per share have dropped 10.0% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, LyondellBasell Industries has increased its dividend at approximately 10% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

Final Takeaway

Is LyondellBasell Industries 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.

So if you're still interested in LyondellBasell Industries despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Our analysis shows 1 warning sign for LyondellBasell Industries and you should be aware of it before buying any shares.

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