Kinetik Holdings Inc. (NYSE:KNTK) 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. Accordingly, Kinetik Holdings investors that purchase the stock on or after the 28th of October will not receive the dividend, which will be paid on the 7th of November.

The company's next dividend payment will be US$0.78 per share, and in the last 12 months, the company paid a total of US$3.00 per share. Last year's total dividend payments show that Kinetik Holdings has a trailing yield of 5.9% on the current share price of US$50.71. If you buy this business for its dividend, you should have an idea of whether Kinetik Holdings's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

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. Kinetik Holdings paid out more than half (58%) of its earnings last year, which is a regular payout ratio for most companies. 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. It paid out more than half (53%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Kinetik Holdings'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. That's why we're optimistic about Kinetik Holdings's earnings, which have ripped higher, up 233% over the past year. While we'd be remiss not to point out that a year is a very short time in dividend investing, it's an encouraging sign so far. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Kinetik Holdings could have strong prospects for future increases to the dividend.

One year is not very long in the grand scheme of things though, so we wouldn't draw too strong a conclusion based on these results.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Kinetik Holdings's dividend payments are effectively flat on where they were three years ago.

Final Takeaway

Is Kinetik Holdings an attractive dividend stock, or better left on the shelf? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see Kinetik Holdings's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 58% and 53% respectively. 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.

While it's tempting to invest in Kinetik Holdings for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 4 warning signs for Kinetik Holdings that we strongly recommend you have a look at before investing in the company.

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.