UL Solutions Inc. (NYSE:ULS) is about to trade ex-dividend in the next four 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase UL Solutions' shares on or after the 29th of November, you won't be eligible to receive the dividend, when it is paid on the 9th of December.

The company's upcoming dividend is US$0.125 a share, following on from the last 12 months, when the company distributed a total of US$0.50 per share to shareholders. Looking at the last 12 months of distributions, UL Solutions has a trailing yield of approximately 0.9% on its current stock price of US$54.04. 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 investigate whether UL Solutions can afford its dividend, and if the dividend could grow.

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. UL Solutions paid out just 3.3% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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 distributed 34% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that UL Solutions'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?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at UL Solutions, with earnings per share up 8.2% on average over the last three years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Unfortunately UL Solutions has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

The Bottom Line

Is UL Solutions an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and UL Solutions is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but UL Solutions is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about UL Solutions, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks UL Solutions is facing. Case in point: We've spotted 1 warning sign for UL Solutions you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.