Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Marshall Motor Holdings Plc (LON:MMH) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 22nd of August will not receive this dividend, which will be paid on the 20th of September.

Marshall Motor Holdings's next dividend payment will be UK£0.029 per share, on the back of last year when the company paid a total of UK£0.085 to shareholders. Looking at the last 12 months of distributions, Marshall Motor Holdings has a trailing yield of approximately 6.1% on its current stock price of £1.405. If you buy this business for its dividend, you should have an idea of whether Marshall Motor Holdings's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Marshall Motor Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Marshall Motor Holdings is paying out an acceptable 57% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Marshall Motor Holdings generated enough free cash flow to afford its dividend. Fortunately, it paid out only 36% of its free cash flow in the past year.

It's positive to see that Marshall Motor 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?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Marshall Motor Holdings's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 46% a year over the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 4 years ago, Marshall Motor Holdings has lifted its dividend by approximately 65% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

Final Takeaway

Is Marshall Motor Holdings an attractive dividend stock, or better left on the shelf? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

Wondering what the future holds for Marshall Motor Holdings? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.