Why It Might Not Make Sense To Buy Orell Füssli AG (VTX:OFN) For Its Upcoming Dividend

It looks like Orell Füssli AG (VTX:OFN) is about to go ex-dividend in the next 3 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. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Orell Füssli investors that purchase the stock on or after the 13th of May will not receive the dividend, which will be paid on the 17th 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. Based on the last year's worth of payments, Orell Füssli stock has a trailing yield of around 3.8% on the current share price of CHF89.8. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Orell Füssli can afford its dividend, and if the dividend could grow.

View our latest analysis for Orell Füssli

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Orell Füssli paid out 71% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Orell Füssli generated enough free cash flow to afford its dividend. It paid out more than half (54%) of its free cash flow in the past year, which is within an average range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. So we're not too excited that Orell Füssli's earnings are down 2.8% a year over the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Orell Füssli has delivered an average of 10% per year annual increase in its dividend, based on the past 10 years of dividend payments. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

Final Takeaway

Is Orell Füssli an attractive dividend stock, or better left on the shelf? While earnings per share are shrinking, it's encouraging to see that at least Orell Füssli's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Orell Füssli.

So if you're still interested in Orell Füssli despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we've found 1 warning sign for Orell Füssli that we recommend you consider before investing in the business.

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.

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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.