Orica (ASX:ORI) Has Announced That It Will Be Increasing Its Dividend To AU$0.13

Orica Limited (ASX:ORI) has announced that it will be increasing its dividend on the 8th of July to AU$0.13, which will be 73% higher than last year. This takes the annual payment to 1.8% of the current stock price, which is about average for the industry.

View our latest analysis for Orica

Orica's Distributions May Be Difficult To Sustain

Solid dividend yields are great, but they only really help us if the payment is sustainable. 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.

Recent, EPS has fallen by 41.9%, so this could continue over the next year. This means the company won't be turning a profit, which could place managers in the tough spot of having to choose between suspending the dividend or putting more pressure on the balance sheet.

Dividend Volatility

Although the company has a long dividend history, it has been cut 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. Dividend payments have fallen sharply, down 73% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Earnings per share has been sinking by 42% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

We're Not Big Fans Of Orica's Dividend

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 isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. The dividend doesn't inspire confidence that it will provide solid income in the future.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. 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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