OneSpaWorld Holdings Limited (NASDAQ:OSW) stock is about to trade ex-dividend in four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase OneSpaWorld Holdings' shares before the 20th of November to receive the dividend, which will be paid on the 4th of December.

The company's upcoming dividend is US$0.04 a share, following on from the last 12 months, when the company distributed a total of US$0.16 per share to shareholders. Calculating the last year's worth of payments shows that OneSpaWorld Holdings has a trailing yield of 0.9% on the current share price of US$18.79. If you buy this business for its dividend, you should have an idea of whether OneSpaWorld Holdings's dividend is reliable and sustainable. So we need to investigate whether OneSpaWorld Holdings can afford its dividend, and if the dividend could grow.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. OneSpaWorld Holdings has a low and conservative payout ratio of just 8.0% of its income after tax. A useful secondary check can be to evaluate whether OneSpaWorld Holdings generated enough free cash flow to afford its dividend. It paid out 5.7% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that OneSpaWorld Holdings'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?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see OneSpaWorld Holdings's earnings have been skyrocketing, up 25% per annum for the past five years. OneSpaWorld Holdings looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the OneSpaWorld Holdings dividends are largely the same as they were five years ago.

Final Takeaway

Should investors buy OneSpaWorld Holdings for the upcoming dividend? OneSpaWorld Holdings has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about OneSpaWorld Holdings, and we would prioritise taking a closer look at it.

In light of that, while OneSpaWorld Holdings has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 2 warning signs with OneSpaWorld Holdings and understanding them should be part of your investment process.

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.

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.