Why It Might Not Make Sense To Buy Osisko Gold Royalties Ltd (TSE:OR) For Its Upcoming Dividend

It looks like Osisko Gold Royalties Ltd (TSE:OR) is about to go ex-dividend in the next 4 days. Investors can purchase shares before the 27th of September in order to be eligible for this dividend, which will be paid on the 15th of October.

Osisko Gold Royalties’s next dividend payment will be CA$0.05 per share, on the back of last year when the company paid a total of CA$0.2 to shareholders. Based on the last year’s worth of payments, Osisko Gold Royalties stock has a trailing yield of around 1.2% on the current share price of CA$16.26. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Osisko Gold Royalties

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Osisko Gold Royalties reported a loss after tax last year, which means it’s paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. With the recent loss, it’s important to check if the business generated enough cash to pay its dividend. If cash earnings don’t cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. The good news is it paid out just 21% of its free cash flow in the last year.

Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

TSX:OR Historical Dividend Yield, September 22nd 2019
TSX:OR Historical Dividend Yield, September 22nd 2019

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Osisko Gold Royalties was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Osisko Gold Royalties has delivered an average of 11% per year annual increase in its dividend, based on the past five years of dividend payments.

Remember, you can always get a snapshot of Osisko Gold Royalties’s financial health, by checking our visualisation of its financial health, here.

Final Takeaway

Should investors buy Osisko Gold Royalties for the upcoming dividend? We’re a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Bottom line: Osisko Gold Royalties has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Wondering what the future holds for Osisko Gold Royalties? See what the seven analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.