The Keg Royalties Income Fund (TSE:KEG.UN) is about to trade ex-dividend in the next 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 Keg Royalties Income Fund's shares on or after the 21st 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 CA$0.0946 per share. Last year, in total, the company distributed CA$1.14 to shareholders. Based on the last year's worth of payments, Keg Royalties Income Fund has a trailing yield of 7.7% on the current stock price of CA$14.75. If you buy this business for its dividend, you should have an idea of whether Keg Royalties Income Fund's dividend is reliable and sustainable. As a result, readers should always check whether Keg Royalties Income Fund has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Keg Royalties Income Fund

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. Fortunately Keg Royalties Income Fund's payout ratio is modest, at just 48% of profit. A useful secondary check can be to evaluate whether Keg Royalties Income Fund generated enough free cash flow to afford its dividend. It distributed 50% of its free cash flow as dividends, a comfortable payout level for most companies.

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 Keg Royalties Income Fund paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about Keg Royalties Income Fund's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Keg Royalties Income Fund has delivered 1.7% dividend growth per year on average over the past 10 years.

Final Takeaway

Should investors buy Keg Royalties Income Fund for the upcoming dividend? While it's not great to see that earnings per share are effectively flat over the 10-year period we checked, at least the payout ratios are low and conservative. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

On that note, you'll want to research what risks Keg Royalties Income Fund is facing. For example - Keg Royalties Income Fund has 1 warning sign we think you should be aware of.

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.