Orora (ASX:ORA) Is Increasing Its Dividend To A$0.09

Orora Limited (ASX:ORA) will increase its dividend from last year's comparable payment on the 9th of October to A$0.09. This will take the annual payment to 5.1% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Orora

Orora's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Orora was paying out quite a large proportion of both earnings and cash flow, with the dividend being 249% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Looking forward, earnings per share is forecast to rise by 17.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 71%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Orora's Dividend Has Lacked Consistency

It's comforting to see that Orora has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2014, the dividend has gone from A$0.075 total annually to A$0.18. This means that it has been growing its distributions at 10% per annum over that time. Orora has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Although it's important to note that Orora's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

Orora's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Orora's payments are rock solid. The payments are bit high to be considered sustainable, and the track record isn't the best. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Orora that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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