Readers hoping to buy CDW Holding Limited (SGX:BXE) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. This means that investors who purchase CDW Holding's shares on or after the 29th of August will not receive the dividend, which will be paid on the 22nd of September.

The company's next dividend payment will be US$0.005 per share, on the back of last year when the company paid a total of US$0.012 to shareholders. Looking at the last 12 months of distributions, CDW Holding has a trailing yield of approximately 7.4% on its current stock price of SGD0.22. If you buy this business for its dividend, you should have an idea of whether CDW Holding's dividend is reliable and sustainable. As a result, readers should always check whether CDW Holding has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for CDW Holding

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. CDW Holding is paying out just 21% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. The good news is it paid out just 16% of its free cash flow in the last year.

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 how much of its profit CDW Holding paid out over the last 12 months.

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. It's encouraging to see CDW Holding has grown its earnings rapidly, up 50% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, CDW Holding looks like a promising growth company.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. CDW Holding has seen its dividend decline 5.0% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

To Sum It Up

From a dividend perspective, should investors buy or avoid CDW Holding? It's great that CDW Holding is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. CDW Holding looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while CDW Holding looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 4 warning signs for CDW Holding (1 is significant!) that you ought to be aware of before buying the 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.