It looks like Ctac N.V. (AMS:CTAC) is about to go ex-dividend in the next three 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Ctac's shares on or after the 11th of April will not receive the dividend, which will be paid on the 19th of April.

The company's next dividend payment will be €0.11 per share, on the back of last year when the company paid a total of €0.11 to shareholders. Based on the last year's worth of payments, Ctac stock has a trailing yield of around 2.9% on the current share price of €3.74. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Ctac

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. Ctac distributed an unsustainably high 137% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 9.2% of its free cash flow in the last year.

It's good to see that while Ctac's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Ctac's 9.0% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.