Orora (ASX:ORA) Will Pay A Larger Dividend Than Last Year At AU$0.075

Orora Limited (ASX:ORA) will increase its dividend on the 11th of October to AU$0.075. This takes the dividend yield from 4.0% to 4.0%, which shareholders will be pleased with.

Check out our latest analysis for Orora

Orora's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 100% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 57%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

EPS is set to grow by 33.5% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 78%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

Orora's Dividend Has Lacked Consistency

Looking back, Orora's dividend hasn't been particularly consistent. 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 AU$0.075 to AU$0.14. This implies that the company grew its distributions at a yearly rate of about 9.3% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Orora might have put its house in order since then, but we remain cautious.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. In the last five years, Orora's earnings per share has shrunk at approximately 4.6% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Orora's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Orora that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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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.
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