Dividend Investors: Don't Be Too Quick To Buy Orion Oyj (HEL:ORNBV) For Its Upcoming Dividend

By
Simply Wall St
Published
March 21, 2021
HLSE:ORNBV
Source: Shutterstock

Readers hoping to buy Orion Oyj (HEL:ORNBV) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 26th of March to receive the dividend, which will be paid on the 7th of April.

Orion Oyj's upcoming dividend is €1.50 a share, following on from the last 12 months, when the company distributed a total of €1.50 per share to shareholders. Based on the last year's worth of payments, Orion Oyj has a trailing yield of 4.3% on the current stock price of €34.74. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Orion Oyj can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Orion Oyj

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year Orion Oyj paid out 96% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 82% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's good to see that while Orion Oyj's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.

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

historic-dividend
HLSE:ORNBV Historic Dividend March 22nd 2021

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that Orion Oyj'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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Orion Oyj has increased its dividend at approximately 1.8% a year on average.

Final Takeaway

Should investors buy Orion Oyj for the upcoming dividend? Earnings per share have barely moved in recent times, and the company is paying out an uncomfortably high percentage of its income. Fortunately its cash generation was somewhat stronger. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that in mind though, if the poor dividend characteristics of Orion Oyj don't faze you, it's worth being mindful of the risks involved with this business. Every company has risks, and we've spotted 1 warning sign for Orion Oyj you should know about.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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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Simply Wall St is focused on providing unbiased, high-quality research coverage on every listed company in the world. Our research team consists of data scientists and multiple equity analysts with over two decades worth of financial markets experience between them.