Eastman Chemical Company (NYSE:EMN) is about to trade ex-dividend in the next 3 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. 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. Thus, you can purchase Eastman Chemical's shares before the 16th of September in order to receive the dividend, which the company will pay on the 7th of October.

The company's upcoming dividend is US$0.81 a share, following on from the last 12 months, when the company distributed a total of US$3.24 per share to shareholders. Calculating the last year's worth of payments shows that Eastman Chemical has a trailing yield of 3.3% on the current share price of US$98.93. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Eastman Chemical

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Eastman Chemical paying out a modest 43% of its earnings. 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. Dividends consumed 63% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that Eastman Chemical'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?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Eastman Chemical's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Eastman Chemical has lifted its dividend by approximately 8.8% a year on average.

Final Takeaway

Should investors buy Eastman Chemical for the upcoming dividend? Earnings per share are down very slightly in recent times, and Eastman Chemical paid out less half its profit and more than half its cash flow as dividends, which is not the worst combination but could be better. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

However if you're still interested in Eastman Chemical as a potential investment, you should definitely consider some of the risks involved with Eastman Chemical. Case in point: We've spotted 2 warning signs for Eastman Chemical you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.