Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that H & M Hennes & Mauritz AB (publ) (STO:HM B) is about to go ex-dividend in just three days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase H & M Hennes & Mauritz's shares on or after the 4th of November, you won't be eligible to receive the dividend, when it is paid on the 10th of November.

The company's next dividend payment will be kr03.55 per share, and in the last 12 months, the company paid a total of kr7.10 per share. Calculating the last year's worth of payments shows that H & M Hennes & Mauritz has a trailing yield of 4.0% on the current share price of kr0177.95. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

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. It paid out 86% 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. We'd be worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether H & M Hennes & Mauritz generated enough free cash flow to afford its dividend. Fortunately, it paid out only 43% of its free cash flow in the past year.

It's positive to see that H & M Hennes & Mauritz'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.

See our latest analysis for H & M Hennes & Mauritz

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. That's why it's comforting to see H & M Hennes & Mauritz's earnings have been skyrocketing, up 62% per annum for the past five years. The company is paying out more than three-quarters of its earnings, but it is also generating strong earnings growth.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. H & M Hennes & Mauritz's dividend payments per share have declined at 3.1% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

The Bottom Line

Should investors buy H & M Hennes & Mauritz for the upcoming dividend? H & M Hennes & Mauritz's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. There's a lot to like about H & M Hennes & Mauritz, and we would prioritise taking a closer look at it.

While it's tempting to invest in H & M Hennes & Mauritz for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 1 warning sign with H & M Hennes & Mauritz and understanding them should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

Disclaimer:This article represents the opinion of the author only. It does not represent the opinion of Webull, nor should it be viewed as an indication that Webull either agrees with or confirms the truthfulness or accuracy of the information. It should not be considered as investment advice from Webull or anyone else, nor should it be used as the basis of any investment decision.