Investors In Orica Limited (ASX:ORI) Should Consider This Data

Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, Orica Limited (ASX:ORI) has paid dividends to shareholders, and these days it yields 2.9%. Should it have a place in your portfolio? Let’s take a look at Orica in more detail.

View our latest analysis for Orica

5 questions I ask before picking a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is it paying an annual yield above 75% of dividend payers?

• Does it consistently pay out dividends without missing a payment of significantly cutting payout?

• Has dividend per share risen in the past couple of years?

• Is its earnings sufficient to payout dividend at the current rate?

• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

ASX:ORI Historical Dividend Yield September 20th 18

Does Orica pass our checks?

Orica has a negative payout ratio, meaning that the company is not yet profitable and is paying dividend by dipping into its retained earnings.

When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.

If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Not only have dividend payouts from Orica fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.

Compared to its peers, Orica generates a yield of 2.9%, which is high for Chemicals stocks but still below the market’s top dividend payers.

Next Steps:

After digging a little deeper into Orica’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three pertinent aspects you should look at:

1. Future Outlook: What are well-informed industry analysts predicting for ORI’s future growth? Take a look at our free research report of analyst consensus for ORI’s outlook.

2. Valuation: What is ORI worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether ORI is currently mispriced by the market.

3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.