Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) is about to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. Accordingly, J.B. Hunt Transport Services investors that purchase the stock on or after the 9th of May will not receive the dividend, which will be paid on the 24th of May.

The company's next dividend payment will be US$0.43 per share, on the back of last year when the company paid a total of US$1.72 to shareholders. Looking at the last 12 months of distributions, J.B. Hunt Transport Services has a trailing yield of approximately 1.0% on its current stock price of US$165.56. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for J.B. Hunt Transport Services

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 J.B. Hunt Transport Services's payout ratio is modest, at just 27% of profit. A useful secondary check can be to evaluate whether J.B. Hunt Transport Services generated enough free cash flow to afford its dividend. J.B. Hunt Transport Services paid out more free cash flow than it generated - 147%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

While J.B. Hunt Transport Services's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to J.B. Hunt Transport Services's ability to maintain its dividend.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see J.B. Hunt Transport Services earnings per share are up 7.3% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. J.B. Hunt Transport Services has delivered 11% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Should investors buy J.B. Hunt Transport Services for the upcoming dividend? J.B. Hunt Transport Services has seen its earnings per share grow steadily and paid out less than half its profit over the last year. Unfortunately, its dividend was not well covered by free cash flow. Overall, it's hard to get excited about J.B. Hunt Transport Services from a dividend perspective.

If you're not too concerned about J.B. Hunt Transport Services's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. To help with this, we've discovered 1 warning sign for J.B. Hunt Transport Services that you should be aware of before investing in their 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.