Is It Smart To Buy Oriental Carbon & Chemicals Limited (NSE:OCCL) Before It Goes Ex-Dividend?

Oriental Carbon & Chemicals Limited (NSE:OCCL) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 10th of November will not receive this dividend, which will be paid on the 3rd of December.

Oriental Carbon & Chemicals's next dividend payment will be ₹4.00 per share, and in the last 12 months, the company paid a total of ₹10.00 per share. Based on the last year's worth of payments, Oriental Carbon & Chemicals has a trailing yield of 1.3% on the current stock price of ₹804.15. If you buy this business for its dividend, you should have an idea of whether Oriental Carbon & Chemicals's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Oriental Carbon & Chemicals

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Oriental Carbon & Chemicals paid out just 20% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 19% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Oriental Carbon & Chemicals'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 how much of its profit Oriental Carbon & Chemicals paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Oriental Carbon & Chemicals's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Oriental Carbon & Chemicals has delivered an average of 9.6% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Final Takeaway

Should investors buy Oriental Carbon & Chemicals for the upcoming dividend? The company has barely grown earnings per share over this time, but at least it's paying out a decently low percentage of its earnings and cashflow as dividends. This could suggest management is reinvesting in future growth opportunities. Generally we like to see both low payout ratios and strong earnings per share growth, but Oriental Carbon & Chemicals is halfway there. There's a lot to like about Oriental Carbon & Chemicals, and we would prioritise taking a closer look at it.

While it's tempting to invest in Oriental Carbon & Chemicals for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Oriental Carbon & Chemicals that we recommend you consider before investing in the business.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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