Readers hoping to buy Canadian National Railway Company (TSE:CNR) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a 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. Meaning, you will need to purchase Canadian National Railway's shares before the 6th of March to receive the dividend, which will be paid on the 28th of March.

The company's next dividend payment will be CA$0.845 per share, and in the last 12 months, the company paid a total of CA$3.38 per share. Based on the last year's worth of payments, Canadian National Railway stock has a trailing yield of around 1.9% on the current share price of CA$175.97. If you buy this business for its dividend, you should have an idea of whether Canadian National Railway's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Canadian National Railway

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Canadian National Railway paid out a comfortable 37% of its profit last year. 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. Over the last year it paid out 55% of its free cash flow as dividends, within the usual range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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. 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 encouraged by the steady growth at Canadian National Railway, with earnings per share up 8.3% on average over the last five years. Decent historical earnings per share growth suggests Canadian National Railway has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.