Stock Analysis

It Might Not Be A Great Idea To Buy Orion Oyj (HEL:ORNBV) For Its Next Dividend

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It looks like Orion Oyj (HEL:ORNBV) is about to go ex-dividend in the next two days. 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. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Orion Oyj's shares before the 24th of March in order to receive the dividend, which the company will pay on the 1st of April.

The company's next dividend payment will be €1.50 per share. Last year, in total, the company distributed €1.50 to shareholders. Based on the last year's worth of payments, Orion Oyj stock has a trailing yield of around 3.7% on the current share price of €40.97. 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 check whether the dividend payments are covered, and if earnings are growing.

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 109% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. 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. Orion Oyj paid out more free cash flow than it generated - 162%, to be precise - last year, which we think is concerningly 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.

Cash is slightly more important than profit from a dividend perspective, but given Orion Oyj's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

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

HLSE:ORNBV Historic Dividend March 21st 2022

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. So we're not too excited that Orion Oyj's earnings are down 4.9% a year over the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Orion Oyj has increased its dividend at approximately 0.5% a year on average.

The Bottom Line

Is Orion Oyj worth buying for its dividend? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (109%) and cash flow as dividends. This is a starkly negative combination that often suggests a dividend cut could be in the company's near future. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Orion Oyj.

So if you're still interested in Orion Oyj despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. In terms of investment risks, we've identified 1 warning sign with Orion Oyj and understanding them should be part of your investment process.

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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Find out whether Orion Oyj 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.

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