Toromont Industries Ltd. (TSE:TIH) stock is about to trade ex-dividend in four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Toromont Industries' shares on or after the 6th of September, you won't be eligible to receive the dividend, when it is paid on the 2nd of October.

The company's next dividend payment will be CA$0.48 per share, and in the last 12 months, the company paid a total of CA$1.92 per share. Last year's total dividend payments show that Toromont Industries has a trailing yield of 1.6% on the current share price of CA$120.67. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Toromont Industries

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Toromont Industries's payout ratio is modest, at just 29% of profit. A useful secondary check can be to evaluate whether Toromont Industries generated enough free cash flow to afford its dividend. Over the last year it paid out 52% of its free cash flow as dividends, within the usual range 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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Toromont Industries's earnings per share have been growing at 15% a year for the past five years. Toromont Industries has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Toromont Industries has delivered an average of 14% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.