Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that PriceSmart, Inc. (NASDAQ:PSMT) is about to go ex-dividend in just three days. 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. 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. Thus, you can purchase PriceSmart's shares before the 14th of February in order to receive the dividend, which the company will pay on the 29th of February.

The company's upcoming dividend is US$0.58 a share, following on from the last 12 months, when the company distributed a total of US$0.92 per share to shareholders. Based on the last year's worth of payments, PriceSmart stock has a trailing yield of around 1.2% on the current share price of US$78.86. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for PriceSmart

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. PriceSmart has a low and conservative payout ratio of just 25% of its income after tax. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 25% of its cash flow last year.

It's positive to see that PriceSmart'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 strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see PriceSmart earnings per share are up 9.0% per annum over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.