Yahoo Finance Orica's (ASX:ORI) Shareholders Will Receive A Bigger Dividend Than Last Year
Orica Limited (ASX:ORI) has announced that it will be increasing its dividend on the 8th of July to AU$0.13. This takes the annual payment to 2.6% of the current stock price, which is about average for the industry.
Check out our latest analysis for Orica
Orica Might Find It Hard To Continue The Dividend
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Despite not generating a profit, Orica is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.
Over the next year, EPS might fall by 41.9% based on recent performance. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The first annual payment during the last 10 years was AU$0.90 in 2012, and the most recent fiscal year payment was AU$0.24. This works out to a decline of approximately 73% over that time. A company that decreases its dividend over time generally isn't what we are looking for.
Dividend Growth Potential Is Shaky
Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Orica's earnings per share has shrunk at 42% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.
Orica's Dividend Doesn't Look Great
In summary, investors will like to be receiving a higher dividend, but we have some questions about whether it can be sustained over the long term. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. The dividend doesn't inspire confidence that it will provide solid income in the future.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Given that earnings are not growing, the dividend does not look nearly so attractive. See if the 11 analysts are forecasting a turnaround in our free collection of analyst estimates here. Is Orica not quite the opportunity you were looking for? Why not check out 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.
