Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Venture Corporation Limited (SGX:V03) is about to trade ex-dividend in the next four 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 Venture's shares on or after the 7th of May, you won't be eligible to receive the dividend, when it is paid on the 21st of May.

The company's upcoming dividend is S$0.50 a share, following on from the last 12 months, when the company distributed a total of S$0.75 per share to shareholders. Based on the last year's worth of payments, Venture has a trailing yield of 5.3% on the current stock price of S$14.21. 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 Venture

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 81% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. 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. Thankfully its dividend payments took up just 46% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Venture's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Venture's 6.3% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.