Four Days Left Until Orell Füssli AG (VTX:OFN) Trades Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Orell Füssli AG (VTX:OFN) is about to trade ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. This means that investors who purchase Orell Füssli's shares on or after the 12th of May will not receive the dividend, which will be paid on the 16th of May.

The company's next dividend payment will be CHF3.40 per share, on the back of last year when the company paid a total of CHF3.40 to shareholders. Looking at the last 12 months of distributions, Orell Füssli has a trailing yield of approximately 4.3% on its current stock price of CHF79. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Orell Füssli

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. Its dividend payout ratio is 78% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline. 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. Dividends consumed 69% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that Orell Füssli's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Orell Füssli's earnings per share have risen 12% per annum over the last five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. Higher earnings generally bode well for growing dividends, although with seemingly strong growth prospects we'd wonder why management are not reinvesting more in the business.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last seven years, Orell Füssli has lifted its dividend by approximately 2.8% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Orell Füssli is keeping back more of its profits to grow the business.

To Sum It Up

Is Orell Füssli worth buying for its dividend? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see Orell Füssli's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 78% and 69% respectively. To summarise, Orell Füssli looks okay on this analysis, although it doesn't appear a stand-out opportunity.

While it's tempting to invest in Orell Füssli for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Orell Füssli and you should be aware of it before buying any shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.