Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Gildan Activewear Inc. (TSE:GIL) is about to trade ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Gildan Activewear's shares on or after the 22nd of November will not receive the dividend, which will be paid on the 19th of December.

The company's next dividend payment will be US$0.17 per share. Last year, in total, the company distributed US$0.68 to shareholders. Looking at the last 12 months of distributions, Gildan Activewear has a trailing yield of approximately 2.4% on its current stock price of CA$37.39. If you buy this business for its dividend, you should have an idea of whether Gildan Activewear's dividend is reliable and sustainable. As a result, readers should always check whether Gildan Activewear has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Gildan Activewear

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Gildan Activewear has a low and conservative payout ratio of just 20% of its income after tax. 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. It paid out more than half (70%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Gildan Activewear'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 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. Fortunately for readers, Gildan Activewear's earnings per share have been growing at 19% a year for the past five years. Gildan Activewear is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Gildan Activewear has lifted its dividend by approximately 16% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Should investors buy Gildan Activewear for the upcoming dividend? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Gildan Activewear looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Gildan Activewear for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 2 warning signs for Gildan Activewear and you should be aware of them before buying any shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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

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.

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