Silgan Holdings Inc. (NYSE:SLGN) stock is about to trade ex-dividend in 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Silgan Holdings' shares on or after the 30th of November, you won't be eligible to receive the dividend, when it is paid on the 15th of December.

The company's upcoming dividend is US$0.18 a share, following on from the last 12 months, when the company distributed a total of US$0.72 per share to shareholders. Looking at the last 12 months of distributions, Silgan Holdings has a trailing yield of approximately 1.7% on its current stock price of $42.1. If you buy this business for its dividend, you should have an idea of whether Silgan Holdings's dividend is reliable and sustainable. As a result, readers should always check whether Silgan Holdings has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Silgan Holdings

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Silgan Holdings's payout ratio is modest, at just 27% of profit. 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. Silgan Holdings paid out more free cash flow than it generated - 180%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Silgan Holdings paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Silgan Holdings to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that Silgan Holdings's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Silgan Holdings has increased its dividend at approximately 9.9% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid Silgan Holdings? Earnings per share have been effectively flat over this time, and Silgan Holdings's paying out less than half its profits and 180% of its cash flow. Only rarely do we find companies paying out a low percentage of their profits yet a high percentage of their cash flow, so we'd mark this as a concern. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

With that being said, if dividends aren't your biggest concern with Silgan Holdings, you should know about the other risks facing this business. For example, we've found 3 warning signs for Silgan Holdings (1 makes us a bit uncomfortable!) that deserve your attention before investing in the shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.