It Might Not Be A Great Idea To Buy OC Oerlikon Corporation AG (VTX:OERL) For Its Next Dividend
Readers hoping to buy OC Oerlikon Corporation AG (VTX:OERL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase OC Oerlikon's shares on or after the 23rd of March, you won't be eligible to receive the dividend, when it is paid on the 27th of March.
The company's next dividend payment will be CHF0.35 per share, on the back of last year when the company paid a total of CHF0.35 to shareholders. Based on the last year's worth of payments, OC Oerlikon has a trailing yield of 6.6% on the current stock price of CHF5.29. 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.
Check out our latest analysis for OC Oerlikon
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. OC Oerlikon distributed an unsustainably high 128% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the past year it paid out 115% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
As OC Oerlikon's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that OC Oerlikon's earnings per share have remained 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. Minimal earnings growth, combined with concerningly high payout ratios suggests that OC Oerlikon is unlikely to grow the dividend much in future, and indeed the payment could be vulnerable to a cut.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. OC Oerlikon has delivered 5.8% dividend growth per year on average over the past 10 years.
To Sum It Up
Is OC Oerlikon an attractive dividend stock, or better left on the shelf? Earnings per share are effectively flat, plus OC Oerlikon's dividend is not well covered by either earnings or cash flow, which is not great. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with OC Oerlikon. We've identified 2 warning signs with OC Oerlikon (at least 1 which makes us a bit uncomfortable), and understanding them should be part of your investment process.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
Valuation is complex, but we're helping make it simple.
Find out whether OC Oerlikon is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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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.
OC Oerlikon Corporation AG provides surface solutions, advanced materials, and material processing in Switzerland.
Very undervalued with excellent balance sheet and pays a dividend.