Readers hoping to buy Randstad N.V. (AMS:RAND) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. Accordingly, Randstad investors that purchase the stock on or after the 26th of September will not receive the dividend, which will be paid on the 1st of October.

The company's next dividend payment will be €1.27 per share, and in the last 12 months, the company paid a total of €2.28 per share. Calculating the last year's worth of payments shows that Randstad has a trailing yield of 5.2% on the current share price of €44.00. If you buy this business for its dividend, you should have an idea of whether Randstad's dividend is reliable and sustainable. So we need to investigate whether Randstad can afford its dividend, and if the dividend could grow.

View our latest analysis for Randstad

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. It paid out 81% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year it paid out 53% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Randstad'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?

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. Readers will understand then, why we're concerned to see Randstad's earnings per share have dropped 5.9% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.