Deluxe Corporation (NYSE:DLX) stock is about to trade ex-dividend in 4 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 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. This means that investors who purchase Deluxe's shares on or after the 17th of May will not receive the dividend, which will be paid on the 3rd of June.

The company's upcoming dividend is US$0.30 a share, following on from the last 12 months, when the company distributed a total of US$1.20 per share to shareholders. Based on the last year's worth of payments, Deluxe stock has a trailing yield of around 5.3% on the current share price of US$22.72. If you buy this business for its dividend, you should have an idea of whether Deluxe's dividend is reliable and sustainable. So we need to investigate whether Deluxe can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Deluxe

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. Deluxe distributed an unsustainably high 154% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. 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. Fortunately, it paid out only 39% of its free cash flow in the past year.

It's good to see that while Deluxe's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Deluxe's earnings per share have dropped 25% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Deluxe has lifted its dividend by approximately 1.8% a year on average.

Final Takeaway

Has Deluxe got what it takes to maintain its dividend payments? It's never great to see earnings per share declining, especially when a company is paying out 154% of its profit as dividends, which we feel is uncomfortably high. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Deluxe's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. Bottom line: Deluxe has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that in mind though, if the poor dividend characteristics of Deluxe don't faze you, it's worth being mindful of the risks involved with this business. For example, Deluxe has 4 warning signs (and 1 which is potentially serious) we think 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.