NewMarket Corporation (NYSE:NEU) stock is about to trade ex-dividend in four 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. 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 NewMarket's shares before the 14th of December to receive the dividend, which will be paid on the 2nd of January.

The company's next dividend payment will be US$2.25 per share. Last year, in total, the company distributed US$9.00 to shareholders. Based on the last year's worth of payments, NewMarket has a trailing yield of 1.6% on the current stock price of $549.18. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for NewMarket

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. NewMarket has a low and conservative payout ratio of just 21% of its income after tax. A useful secondary check can be to evaluate whether NewMarket generated enough free cash flow to afford its dividend. Luckily it paid out just 19% of its free cash flow last year.

It's positive to see that NewMarket'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 how much of its profit NewMarket paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see NewMarket's earnings have been skyrocketing, up 21% per annum for the past five years. NewMarket looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, NewMarket has lifted its dividend by approximately 9.6% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.