Universal Corp (UVV -1.27%) has paid out and raised its dividend for 41 consecutive years. This puts the company in an elite club of dividend aristocrats. Aside from Altria (MO 1.45%), which has been paying and increasing its payout for 43 years, Universal actually has the longest dividend history of any company within the tobacco sector.

Universal yields a very respectable 4% at present, but how much longer will this continue ?

What to look for in a sustainable payout
The first place you usually look when assessing the sustainability of a dividend payout is the company's financial statements.

Most of the time, a company's dividend cover or payout ratio is calculated using earnings per share. However, this can be an unreliable method of evaluation as earnings per share can be affected by non-cash and extraordinary items; this can provide a misleading overview of the company's financial situation.

Personally, I prefer to use the company's cash flows since in business, cash is king. If a company is paying out more cash through dividends than it makes from operations, then the company in question could be heading for trouble regardless of earnings per share.

For example, let's take a look at Philip Morris International (PM -2.96%). Now for the last four quarters, Philip Morris has paid out $3.49 in dividends per share. For the same period, the company has earned $5.28 per share, which gives us a dividend cover of 1.5 times and a payout ratio of 66%.

However, if we look at Philip Morris' cash flows we get a different picture. For the same period, the company generated $10.1 billion in cash from operations and paid out $5.6 billion in dividends; this equates to a payout ratio of 55% and a dividend cover of 1.8 times. These numbers are slightly better than the figures above, which are based on earnings per share and indicate that Philip Morris' dividend is easily covered by cash flows with plenty of room for growth .

So how does Universal's payout look using the above method? Well, firstly we need to remember that due to the nature of Universal's business (farming), its profits are highly seasonal. Nevertheless, during the past four months, Universal generated $126 million in cash from operations. This cumulative figure includes a cash loss of $24 million reported during the second quarter (when the company lost out due to the timing of tobacco shipments.) From  this $126 million, the company paid out $61.3 million in dividends. That gives us a dividend cover of 2.06 times even with the loss reported for the second quarter; I would say that this indicates a fairly secure payout.

Enough of the numbers
Numbers don't tell the whole story, so what does Universal's outlook look like? Well, it would appear that Universal is gearing up for a period of growth. It recently announced that it was going to spend $50 million developing and expanding its leaf processing capacity within Mozambique. Additionally, the company announced that it was going to increase capacity within other regions to meet demand for tobacco, which is expected to rise during the next few years.

Universal's drive for growth is one-of-a-kind in the tobacco sector. Altria, for example, is having to rely on what can only be futile price increases to stop its revenue from sliding. When I say futile, I mean that customers are likely to be put off by higher prices. With the number of smokers within the U.S. declining, though, Altria has no choice but to raise prices to keep profits rising .

What's more, if we look at Altria's sales numbers then we can see that while sales of the company's premium brands such as Marlboro declined by several percentage points during the first nine months of this year, sales of the company's discount brands actually increased by nearly 5%. This trend is positive for Universal as the company benefits regardless of which brand of tobacco is sold .

Foolish summary
Universal has been paying out a dividend for more than four decades, and it looks as if this trend is set to continue. The company's payout was well covered by cash from operations during the last four quarters (and was actually better covered than that of Philip Morris) and there is plenty of room for further payout growth. What's more, Universal is gearing up for growth investing to boost output and this should lead to stronger cash flows and even more dividend flexibility.