Greif, Inc. (NYSE:GEF) stock is about to trade ex-dividend in 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a 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 Greif's shares on or after the 16th of December, you won't be eligible to receive the dividend, when it is paid on the 1st of January.

The company's next dividend payment will be US$0.54 per share, on the back of last year when the company paid a total of US$2.08 to shareholders. Looking at the last 12 months of distributions, Greif has a trailing yield of approximately 3.0% on its current stock price of US$68.38. 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 Greif 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. Greif is paying out just 9.2% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Greif generated enough free cash flow to afford its dividend. 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 Greif'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?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Greif earnings per share are up 9.4% per annum over the last five years. Decent historical earnings per share growth suggests Greif has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Greif has lifted its dividend by approximately 2.2% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Has Greif got what it takes to maintain its dividend payments? Earnings per share growth has been modest, and it's interesting that Greif is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

In light of that, while Greif has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 2 warning signs for Greif (of which 1 is significant!) you should know about.

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.