Yahoo Finance Here's What We Like About Otis Worldwide's (NYSE:OTIS) Upcoming Dividend
Otis Worldwide Corporation (NYSE:OTIS) stock is about to trade ex-dividend in four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Otis Worldwide's shares before the 16th of May in order to receive the dividend, which the company will pay on the 7th of June.
The company's next dividend payment will be US$0.39 per share, on the back of last year when the company paid a total of US$1.56 to shareholders. Looking at the last 12 months of distributions, Otis Worldwide has a trailing yield of approximately 1.6% on its current stock price of US$97.10. If you buy this business for its dividend, you should have an idea of whether Otis Worldwide's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for Otis Worldwide
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Otis Worldwide paid out a comfortable 39% of its profit last year. A useful secondary check can be to evaluate whether Otis Worldwide generated enough free cash flow to afford its dividend. Fortunately, it paid out only 40% of its free cash flow in the past year.
It's positive to see that Otis Worldwide'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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Otis Worldwide earnings per share are up 7.8% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, four years ago, Otis Worldwide has lifted its dividend by approximately 18% a year on average. 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
Is Otis Worldwide an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Otis Worldwide is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Otis Worldwide is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Otis Worldwide, and we would prioritise taking a closer look at it.
In light of that, while Otis Worldwide has an appealing dividend, it's worth knowing the risks involved with this stock. For instance, we've identified 4 warning signs for Otis Worldwide (1 is a bit concerning) you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.
