Readers hoping to buy Mensch und Maschine Software SE (ETR:MUM) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. 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 Mensch und Maschine Software's shares on or after the 9th of May, you won't be eligible to receive the dividend, when it is paid on the 6th of June.

The company's next dividend payment will be €1.65 per share, on the back of last year when the company paid a total of €1.65 to shareholders. Looking at the last 12 months of distributions, Mensch und Maschine Software has a trailing yield of approximately 2.9% on its current stock price of €57.70. If you buy this business for its dividend, you should have an idea of whether Mensch und Maschine Software's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Mensch und Maschine Software

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year Mensch und Maschine Software paid out 94% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out more than half (52%) of its free cash flow in the past year, which is within an average range for most companies.

It's good to see that while Mensch und Maschine Software'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.

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 earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Mensch und Maschine Software's earnings per share have risen 20% per annum over the last five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Mensch und Maschine Software has delivered 23% dividend growth per year on average over the past 10 years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

From a dividend perspective, should investors buy or avoid Mensch und Maschine Software? Growing earnings per share and a normal cashflow payout ratio is an ok combination, but we're concerned that the company is paying out such a high percentage of its income as dividends. In summary, while it has some positive characteristics, we're not inclined to race out and buy Mensch und Maschine Software today.

So if you want to do more digging on Mensch und Maschine Software, you'll find it worthwhile knowing the risks that this stock faces. Our analysis shows 1 warning sign for Mensch und Maschine Software and you should be aware of this before buying any shares.

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.