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 Kainos Group plc (LON:KNOS) 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. 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 Kainos Group’s shares on or after the 2nd of October will not receive the dividend, which will be paid on the 24th of October.

The company’s next dividend payment will be UK£0.191 per share, and in the last 12 months, the company paid a total of UK£0.28 per share. Based on the last year’s worth of payments, Kainos Group stock has a trailing yield of around 3.2% on the current share price of UK£8.93. If you buy this business for its dividend, you should have an idea of whether Kainos Group’s dividend is reliable and sustainable. So we need to investigate whether Kainos Group can afford its dividend, and if the dividend could grow.

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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. Last year, Kainos Group paid out 100% of its income as dividends, which is above a level that we’re comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether Kainos Group generated enough free cash flow to afford its dividend. Dividends consumed 64% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organisations.

It’s good to see that while Kainos Group’s dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we’d be concerned about whether the dividend is sustainable in a downturn.

See our latest analysis for Kainos Group

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

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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we’re glad to see Kainos Group’s earnings per share have risen 14% per annum over the last five years.